Cefa Case Book1

Certificate for Financial Advisers
THE INSTITUTE OF BANKING AND FINANCE

OF TRINIDAD AND TOBAGO
CERTIFICATE FOR FINANCIAL ADVISERS
CASE WORKBOOK
- PAPER 3
Contents
Preface : Introduction to cases 3
Chapter 1 : Mortgages Cases 1- 4 4
Chapter 2 : Insurance Cases 5-8 8
Chapter 3 : Financial Products Cases 9-12 12
Chapter 4 : Retirement Planning Cases 13- 16 16
Chapter 5: Consumer Credit Cases 17-20 20
Chapter 6 : Sample examination 1 24
Chapter 7 : Sample examination 2 27
Chapter 8 : Suggested Answers 30

Preface
Introduction to Cases
The rationale for the use of cases or less directive questions lies in their relevance to real life, since
clear-cut answers rarely apply to a large percentage of real life activities and transactions. Some
other reasons for the use of cases are :-
 Provide a space to think about practice
 Raise the level of critical thinking skills
 Prompt deeper diagnosis and meaning making
 Help learners connect theory and practice
Simply learning a range of facts and being able to recall these in an examination is no guarantee that
the student will be able to apply the knowledge in actual life situations. Students are also required to
be able to apply the knowledge obtained as well as to evaluate it and this can be achieved cost
effectively by the use of cases.
The cases in this workbook seek to help students to assess the knowledge gained from the study of
the “manual” and to be able to apply same in situations similar to those they will experience as
Certified Financial Advisers. It is recommended that students first read and attempt the cases and
thereafter compare their responses with the solutions given.

Chapter 1
Mortgages
Case 1
Dave Maharaj and his finance Sherry-Ann Roopnarine have been searching for a house to purchase
in the Central area of Trinidad, which would be ideal since Dave works in South and Sherry-Ann has
to commute to the East-West corridor. Dave has seen an advertisement for new homes at Balmoral
Park, East Edinburgh Gardens Chaguanas. Prices start from $250,000 for a two bedroom unit and a
10% deposit is required. Dave and Sherry-Ann have approached you for advice on purchasing one
of these homes. Sherry-Ann is a second year UWI student while Dave has been working for 3 years
as a geologist with Petrotrin.
(a) Explain to Dave and Sherry-Ann how a lender would go about determining the maximum amount
they would qualify for under a mortgage.
(b) Outline the total costs that would be involved in purchasing a home for $250,000
(c) Recommend a mortgage protection policy and indicate its advantages and disadvantages.
Response:-
Suggested Answer I
The purpose of this question was, to test candidates' abilities to question appropriately,
inform and advise clients about various aspects of pension provision.
(a) Questions to ask Lionel and document(s) required:
• For how long has he been a member of the scheme?

• What are the criteria for calculating the pension?
• If a member for less than his time employed [e.g. for only a short time], any other
provision?
• What can be taken into account (if anything) in addition to basic salary.?
• Documents such as scheme booklet [or similar].
(b) General issues for Sumintra to have in mind are:

♦ When might she wish to retire?

♦ Phased retirement?
♦ Standard of living required?
♦ Choice of provider [type of fund].
♦ Considerations such as security [ability to transfer] [cash availability] [etc.]
(c) Sumintra can be informed and advised as follows:
She can take out a personal pension and she is eligible to do so because:
She pays tax via the PAYE system and is in non-pensionable employment.
She can make contributions and up to $12,000 annually is deductible for tax from net
chargeable earnings , which are:
Earnings chargeable to tax and after certain deductions [in brief!].
At age 37 she can contribute up to $12,000 per year
on which she will get tax relief at 35% [her highest rate].
Case 2
Gertrude Joseph has recently divorced her spouse after nine years of marriage and is seeking to
purchase a two-bedroom townhouse in Ellerslie Gardens Maraval valued at $400,000. Candice, her
eight year old daughter, lives with her and attends school at Sacred Hearts Girls R.C. Her ex-husband
has migrated and the divorce settlement while entitling her to $150,000 from the sale of their former
home excluded alimony payments. Gertrude works as an Administrative Assistant with a prominent
law firm in Port of Spain with which she has been employed since leaving Secondary school and
earns $6,000 monthly.
Gertrude has approached you for advice on :-

(a) What is the first step if she is desirous of purchasing the townhouse ?
(b) What happens after she applies for mortgage financing?
(c) What is the APR ?
Response:-
Suggested Answer 2
This question concerned the benefits, risks and tax treatment of equities, and the
disadvantages of commercial property investment.
(a) It might be a good idea to invest in equities because, and they might provide the
following:
• They may beat inflation./ •They may provide dividends.

• They may provide capital gain. /•Collectively, they can provide balance/spread of risk.
• They generally [consistently] outperform investments such as fixed interest over the
long term.
(b) The main risks are:
• Loss of all or part of the amount invested./• Sector.

• Geographical./• Strength of company.
• Concentration on too much investment in too few shares.
(c) The taxes are:
• Income Tax /• Capital Gains Tax
They are levied on:

• Dividends (income Tax)/ • Realized capital gains (Capital Gains Tax)
The rates are:

• Income Tax: rate of 28% [if assessable income < 50,000] and 35% for income >
$50,000
(d) Disadvantages of investing in commercial property
♦ Bad location [now or later becomes a bad location]

♦ Difficulty in letting property [ due to economic climate /bad site etc]
♦ Possibly less readily marketable
♦ High initial cost of investment
♦ High continuing cost [e.g. expert management fees]
_______________________________________________________________________________
Case 3
Alicia and Ashton Gunn are purchasing the house of their dreams, a modern five bedroom flat in a
quiet residential area with a scenic mountain view and located in a gated community. They have been
advised that they should take out life insurance policies for the value of their mortgage. However
they are not convinced that this is really necessary. They are seeking information on the reasons why
they should establish such policies, on the common polices available and the policy which would
meet the requirements of the lender but be the least costly.
a) Indicate the reason why life insurance to cover the mortgage principal is usually recommended.
b) List the common policies available
c) Recommend a policy that would meet the lender requirements and meet their needs for low costs.
Response:-
Suggested Answer 3
This was a straightforward question requiring candidates to explain the main features of
the three different types of protection products.
(a) (i) Critical illness
• Provides a lump sum on diagnosis of one of a given range of illnesses.

• Death of insured is not a requirement for payment.
• Normally only one claim per policy.
• Recovery does not require return of the payment.
(ii) Permanent health:
• Provides [replacement] income, where insured unable to work because of illness,

disability or accident.
• "Permanent" means the policy stays in force notwithstanding more than one claim.
• There can be cancellation for other and valid reasons.
• Particularly important for the self employed.
• Benefit set at proportion of earnings, to encourage return to work.
• "Partial benefit" provision sometimes available.
• Deferred period typically built in.
• Often certain exclusions [e.g. for drug abuse].
(iii) Private medical insurance:
• Provides private medical treatment.

• Suitable for speedy treatment.
• Pays costs of treatment [all or the greater part].
• Often several levels according to types of hospital and treatment[area , local or
abroad].
• Generally, certain exclusions [e.g. check-ups by dentists /opticians].
(b) The one to be suggested is:
• Permanent health insurance, because it provides income, which is what Melissa would
particularly require.
Case 4
Vishnu and Zobeda Ramdial were married in June 2002 and honeymooned in Barbados. Following
their honeymoon they rented rent a small flat in Tunapuna. Vishnu is an accomplished musician who
travels extensively with a popular jazz band that will be touring North America and Europe over the
next six months to promote their latest CD, while Zobeda is the band's manager. Both are in their late
twenties and wishing to have their own home to come back to from their frequent trips abroad, have
decided to purchase a home in Trinity Gardens for $250,000.
a) Advise them on the special low cost mortgage arrangements available for first time home owners
in Trinidad.
b) Indicate the normal restrictions that apply
Response:-
Chapter 2
Insurance
Case 5
Karl Richards, a twenty year old customer service representative at a major appliance store, has only
been employed for two months. Karl is an active sport-man and is a member of a popular cricket
club. While at school he also participated in hockey, basketball and football. His co-workers are
urging him to invest using life insurance. Karl who is single, always felt that life insurance was for
persons with dependants and has approached you to explain the following :-
a) The three reasons why persons take out life insurance

b) What financial burdens are reduced via life insurance
c) What factors he should take into account in selecting an insurance company and why these
factors are important.
Response:-
(a) ____________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
(b) ____________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
(c) ____________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
Case 6
Rajesh Mongru age forty years, owns a small trucking business which he has built up over the last
fifteen years. He has six children ranging in ages form two to twenty years and is desirous of taking
out life insurance policies on his wife and himself. His wife is a home-maker and assists him in the
business by writing up the accounts, however she is not paid a salary for doing so.
(a) Advise Rajesh on the factors that must be considered in determining the amount of cover he
should purchase.
(b) What factors would affect the cover to be purchased for his wife ?
Response:-
a) ___________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
(b) ____________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
Case 7
Following the illness of an employee who was bedridden for six months without an income, you have
been asked by your friend Albert Figaro to give a short talk to all workers at his company on the
basics of 'sickness protection'.. Albert owns a small construction company which specialises in
building low-cost homes. His employees are builders, masons, carpenters and plumbers who
generally do not have insurance policies for health and disability outside of workmen's compensation
and National Insurance Benefits.
Make short notes to assist you in your presentation :-
(a) What needs are covered by ‘sickness’ protection
(b) What factors affect the amount of sickness cover that should be taken out
Response:-
(a) ____________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
(b)_____________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
Case 8
You have volunteered to give a talk at the local YMCA on "protection products". Your audience will
consist mainly of young adults involved in various sporting activities at the institution. In preparing
for your presentation you decide to use 'cue cards' with explanatory notes. Complete your cue cards
to assist you with explaining the main types of policies available for life, health, disability, casualty
and property insurance.
Response:-
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
Chapter 3
Financial Products
Case 9
Lauren Allick recently graduated from the University of the West Indies and started work as a
trainee civil engineer with a local construction firm. Her mother keeps pointing out that the two most
important financial tasks in your twenties are to get started in a career and to start saving something.
"The biggest mistake people make is to put off saving," she keeps saying, . "They don't realize how
much more they will have to save if they wait until they are in their 40s or 50s." "You need to Save,
save, save, even if it's only $25 a month to start."
Lauren approaches you for advice in an effort to get her mother "off her back".
(a) She asks that you distinguish between a savings and an investment account
(b) She also wants to know six reasons why persons invest
(c) Thirdly she asks you to explain the difference between (i) an income producing investment and
(ii) a capital producing investment.
Response:-
(a) ____________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
(b) ____________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
(c) ____________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
Case 10
Cheryl Peters is a loans officer with a local commercial bank with 17 years industry experience. She
owns her own car and home. Her car is a foreign used Mazda 323 which she purchased for $30,000
in December last year and financed partly via a staff loan for $20,000. Her home is a condominium
in Valsayn on which she has a mortgage with a principal balance of $220,000. On receiving a
generous end-of-year bonus, she has decided to invest a major portion of it and approaches you for
your recommendations.
a) What questions would you ask Cheryl to determine what is the most appropriate investment
instrument for her.
b) What criteria would you use to base your recommendations.
Response:-
a) __________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
(b) ___________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
Case 11
As a Certified Financial Planner, when you are approached to recommend investments for your
clients, you need to carefully assess the client's circumstances before making a recommendation.
(a) List the five factors you would need to consider before you recommend an investment for a client.
(b) Explain the difference between the three categories of investments (i) deposit based
(ii) fixed interest and (iii) asset backed.
Response:-
(a) ___________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
(b) ____________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
Case 12
George Ferdinand approaches you to advise him on whether he should move his funds which are
presently invested in a one year fixed deposit at a commercial bank, to a Finance company. He
recently saw an advertisement in the local newspapers where the finance company is offering 14%
interest for a one year fixed deposit, whereas George is presently receiving 8 1/2% at the local
commercial bank.
He has also heard of asset backed investments and life assurance investments and has asked that
you (i) explain the reasons why persons would invest in asset-backed investment and (ii) list the
main advantages and disadvantages of life assurance investments.
a) What are the seven criteria you would use to judge deposit based accounts suitability to a
particular client and would therefore use to base your recommendation to George.
b) List the 3 reasons people generally invest in asset-backed instruments.
c) Indicate what are the main advantages and disadvantages of a life assurance investment.
Response:-
(a) ____________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
(b) ____________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
(c) ____________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
Chapter 4
Retirement Planning
Case 13
Gary Edwards joined the Government's Inland Revenue Service in 1970, where he worked as a clerk
1 for 10 years leaving in 1980 to join Petrotrin as a payroll supervisor. He has enjoyed the last
twenty two years at Petrotrin but however was not much of a ‘planner’ being known as a guy who
lives it up in the moment. Gary recently celebrated his 50th birthday and has been having ‘thoughts’
about catering for the days when he will not be fully employed with a salary coming in each month.
He then approaches you to assist him in planning for his retirement.
a) Prepare a list of questions to ask Gary that would form the basis off your "fact find".
b) What particular documents would you suggest that he walk with when he comes to visit you.
Response:-
(a) ____________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
(b) ____________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
Case 14
Gloria Frederick would like to maximise her tax deduction for pension/ annuities. She currently
contributes 5% of her salary under her employment scheme. While Gloria's basic salary is $100,000
annually she estimates that she can easily afford to save another $12,000 for pension contributions.
(a) Advise Gloria about the pension options and typical benefits available to her under (i) the state
(both
old age pension entitlements and National Insurance) (ii) her employment plan (iii) individual
schemes.
(b) Also advise Gloria on what are some of the main changes that an occur at retirement and how
they may impact her life-style.
Response:-
a) ___________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
(b) ____________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
Case 15
Lystra Richards lives in Saddle Grove Santa Cruz on one acre of land. She is exceeding proud of her
home and of her garden in which she spends almost every spare minute. Her flowers usually win at
least one prize at the annual flower show while some of the output from her vegetable garden is sold
to the local supermarket and yield income of $500 monthly.
She is presently branch manager of a retail bank in San Juan just a few miles from her home. In
planning for her retirement, she expects that she will remain in relatively good health and will be
able to spend her retirement devoting her time to her gardening. She has asked you to assist her in
quantifying her pension needs.
a) What additional information do you require to assist her.
b) Assuming the following calculate the shortfall between her expected income at retirement and
her total expenses :- Lystra wishes to retire at age 55 years in 10 years time and has no
dependants. Her monthly expected flows are - income needed $4,000 less than current income of
$10,000, pension $2000, individual annuity $700 vegetable sales $700.
Response:-
(a) ___________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
(b)_____________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
Case 16
You recently attended a National Insurance Seminar and will be making a short presentation at the
next monthly staff meeting. Your objective is to outline the subjects dealt with at the seminar to your
co-workers.
Make short notes explaining the following:-
a) The major types of benefits under National Insurance namely sickness, maternity, pension,
injury and death.
b) The maximum amounts payable under each benefit.
c) Any special conditions or restrictions pertaining to these benefits.
Response:-
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
Chapter 5
Consumer Lending
Case 17
Denise Sutherland works as a sales agent with a local distributor and wishes to purchase a foreign
used motor vehicle for $30,000. She is still unsure how to finance it and has received the following
recommendations :-
(i) Use her platinum credit card and maximise her bonus points repaying over 36 months.
(ii) Approach a commercial bank for an instalment loan
(iii) Accept the financing offered by the manufacturer own finance company
She has approached you to explain to her what are the common features of Auto loans - including
the down-payment required, other fees and costs involved in the transaction, what is a mortgage bill
of sale and from whom Auto loans are normally available. Why would you not recommend financing
via her credit card.
Response :-
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
Case 18
Wendy Jeffers and her husband Richard own a four bedroom split-level home in Palmiste La
Romain. The house is ten years old and they have decided to renovate it for Christmas with the
builder’s estimate amounting to $80,000. They are considering either a second mortgage via a Home
Equity loan or a Instalment Loan for home improvement.
(b) What questions would you ask Wendy and Richard as part of your fact find before making your
recommendations.
(b) Explain the main features of (i) a second mortgage and (ii) an instalment loan for home
improvement
Response:-
(a) ____________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
(b) ____________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
Case 19
Ayanna Lopez has been working as a receptionist for the last two years and her salary is remitted to
the bank each month. The customer service representative recommended on her last visit that she
accept an ATM card to be able to withdraw her salary via the automatic teller machines instead of
coming into the Bank.
Ayanna is considering the suggestion but has since heard other persons mentioning (i) charge cards
(ii) debit cards and (iii) credit cards. She has called you and asked for clarification of the basic
features and uses of (i) charge cards (ii) debit cards and (iii) credit cards.
Response -
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
Case 20
David Reyes is the Operations Manager at a local Manufacturing Plant. In August last year he took
his wife on a seven day cruise using his recently acquired credit card to finance the vacation, since he
was unable to get additional financing via a consumer loan, due to his high debt service ratio. Since
then David has been paying the minimum payment each month. His other loan facilities include (i) a
15 year mortgage, and (b) an Auto loan established 2 years ago with 18 months remaining and a net
pay-off balance of $70,000.
Each facility is with a different institution. His boss the CEO has just advised David that he will be
promoted to COO (Chief Operating Officer) with an increase in pay of $3000 monthly.
David has approached you to advise him on consolidating his debts.

(a) What are his chances of getting a new loan to consolidate the Auto loan and the balance
outstanding on his credit card.
(b) What other advice would you give David.
Response:-
a) ___________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
(b) ___________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
Chapter 6
Sample Examination 1
Time allowed, THREE hours

Answer all FOUR (4) questions
All questions carry equal marks
Question 1
A friend of theirs recently introduced you to Lionel and Sumintra Lalchan, who have become your
new clients. Although married for twelve years, they have no children, neither do they intend to start
a family nor adopt. You may assume that there will be just the two of them and that, although they
have many relatives, no one is or will be financially dependent on them. Both are taxed at 35% on
marginal income.
Lionel is 40 years of age. At the age of 20, after two years at college, he started work as a full-time
employee of a manufacturing company and has worked there ever since. Not unreasonably, he
considers that he will remain employed there, on a full-time basis, until he retires at the age of 60.
He is the assistant manager of a large purchasing department, with the expectation of one day
becoming the manager.
All you know about Lionel’s pension arrangements is that he is a member of his company's final
salary, non-contributory pension scheme. He is concerned, however, about what this might provide
him with at the age of 60. He appreciates that, at this stage, it is impossible to tell him precisely how
much he will receive, but he would like to know how it operates and whether he will get a full
pension.
Suminta is 37 years of age. She is an employee of a small company which does not offer a pension
scheme and is unlikely to do so. She earns $60,000 a year as a sales supervisor. She is very career
minded - so much so that she has not had time, until now, to consider pension planning.
Consequently, she has
not yet made any provision whatsoever.
Now, address the following:
(a) What questions would you ask Lionel and what documentary evidence might you need, to be in a
position to advise him about his future pension benefits? (5 marks)
(b) Advise Sumintra what general planning issues she should bear in mind when considering pension
provision. (5 marks)
(c) Tell her what she can do towards pension provision, and why she can do so. Then, taking into
account what you know about her financial circumstances, and with suitable brief, supporting
explanations, advise her how she can best arrange her circumstances from the pension provision point
of view. In doing so, take into account relevant tax considerations. (15 marks)
(Total - 25 marks)
Question 2
Arnold has a large sum of money invested in a number of fixed interest securities, however he is not
happy with the returns he is receiving. Since he would not need to use the sum invested in the short to
medium term he is considering investing the sum in longer term investments.
While Arnold is in favour of direct investment in commercial property, you have suggested that he
invest directly in equities. He is very optimistic about property investment. One of the reasons for
his optimism is that he sees receipt of rents as the only answer to his concern over the low returns
which he is getting at present.
You have suggested that he should consider investing at least part of the available sum of money in
equities. Whilst acknowledging that investment in commercial property can have its advantages,
you have cautioned him that there can also be disadvantages in doing so. Moreover, you have made
the point that equity investment is not without its risks either.
To clear up some points for him, Arnold has asked you to explain certain things. Respond to his
questions accordingly.
(a) Why might it be a good idea to switch at least part of my money into equities for the longer term?
If I do so, what might they provide, typically, by way of return?' (5 marks)
(b) In general terms, what are the main risks in investing in equities?' (5 marks)
(c) As just about everything is taxed these days, what taxes impinge on equities, on what are they
levied, and at what rates?' (10 marks)
(d) What are the disadvantages in investing directly in commercial property?' (5 marks)
(Total - 25 marks)
Question 3
Melissa is single, and self-employed. She considers it important that she takes out a suitable
insurance product, even though she has always enjoyed good health. She is 30 years of age, and fit,
but she recognises that this may not always be the case. In addition, as a self-employed person, with
no one to rely on financially, she feels somewhat vulnerable.
She has heard of three types of product that may be of use to her: critical illness, permanent health,
and private medical insurances. She would like you to explain them to her. It is likely that she will
be able to afford only one of them.
(a) Advise Melissa of what is provided by, and what are the important and inherent features of:
(i) critical illness insurance; (5 marks)
(ii) permanent health insurance; (10 marks)
(iii) private medical insurance. (5 marks)
(b) Suggest which one of the above she should take out, and why she should do so. (5 marks)
(Total - 25 marks)
Question 4
(a) Explain to Shah the features of a money market fund and an income and growth fund and how
they differ. (10 marks)
(b) Before Shah considers taking out an investment bond, he would like you to explain to him the
general features of such bonds. Note: Do not discuss the tax treatment of such bonds. (10 marks)
(c) It has been said that a general principle of investment is to have a well-balanced portfolio, and
that it should contain a cash element. What questions would you ask a client about how much
instantly available or short-notice cash should reasonably form a part of that client's portfolio? Why
is it necessary to ask such questions? (5 marks)
(Total - 25 marks)
Chapter 7
Sample Examination 2
Time allowed, THREE hours
Answer all FOUR (4) questions
All questions carry equal marks
Question 1
Gerard is 30 years old and has his own business, which he set up some seven years ago. The business
has gone from strength to strength, and it seems reasonable to assume that it will remain successful,
and Gerard prosperous, for the foreseeable future. Gerard is prudent but, nevertheless, he is able to
(and does) draw reasonably substantial sums from his business, a large proportion of which he saves,
on a regular basis.
He has yet to consider his investment strategy - including tax saving (in so far as it is possible),
protection, and pension provision. Rather than continue to rent a property, which he has been doing
for several years, he now wishes to have a 'home of his own'. He therefore intends to start looking
for a suitable property.
(a) Explain to Gerard what a lender will take into account in determining his borrowing capacity.
Include in your explanation what is meant by an 'income multiplier' and, typically, what that
multiplier might be. (10 marks)
(b) You have already explained to Gerard that there are two basic types of mortgage, one of which is
the interest-only mortgage, which can be linked to any one of a number of different investment
products.
Now, explain the other basic type of mortgage to him, outlining its essential features. (5 marks)
(c) Gerard has read recent press articles about endowment policies linked to mortgages.
Consequently, whether justifiably or not, he is unwilling to consider the endowment method. Tell
him of another product which can be linked to an interest-only mortgage and which might suit his
circumstances Briefly explain why it might suit him and how it works. (10 marks)
(Total - 25 marks)
Question 2
Address the following queries, from five different investors, by advising each of them appropriately.
(a) You previously told Anthony, aged 61, that annuity rates were very low, and likely to remain so.
Nonetheless, he purchased an annuity. He is now surprised, he says, to find that the first payment
from his purchased life annuity has had tax deducted. Explain to Anthony why, and on what basis,
tax has been applied. (5 marks)
(b) Giselle, who is in her mid-forties, is a very cautious investor. She likes the idea of investing
mainly, but not exclusively, in Commercial Bank Fixed deposits. In addition, she has a 'nest egg' on
deposit with a credit union and a sum in a spread of unit trusts. In about a month's time, an
investment of hers will mature, producing a sum of $50,000.
Giselle has heard of asset –backed investments and has asked you to suggest a product into which
she can put all of the $50,000 for at least five years. She does not want income from the product.
Advise her of a suitable product, and briefly explain its main characteristics. (5 marks)
(c) Sati, aged 19, has $7,000 to put into a long term investment . She would like to increase her tax
deductions if possible and has therefore asked that you recommend an investment that would meet
both criteria. Advise her of an investment product which can be considered. (5 marks)
(d) On your recommendation, Darlo recently purchased a block of ordinary shares in a reputable
company traded on the local stock exchange. The company will shortly pay a dividend. Darlo
wishes to know how dividends are taxed, and how tax will affect him. Advise him accordingly. (5
marks)
(e) Leah has become a 'risk taker'. She wishes to know about options. Explain, briefly, the basics of
what it is that options provide, and the risks involved in taking them out. (5 marks)
(Total - 25 marks)
Question 3
You are an independent financial adviser who has been invited to make a short presentation to an
audience of trainees. You have been asked to address three particular issues:
- Why people take out protection products.

- How protection products can help individuals.
- Comparing different providers of protection, and other, products.
In preparing for your talk, write explanatory notes covering the following specific points:
(a) People who have made some provision against the financial difficulties caused by death or
sickness often refer to three main factors which influenced their decision. State what these factors
are, and why
protection products satisfy them. (5 marks)
(b) Give five ways in which protection policies can help individuals. (5 marks)
(c) (i) An early stage in the process of comparing providers is to identify companies which offer
the type of product required. However, having done so, some of these providers can be rejected, for a
variety of reasons. What are these various reasons?
(ii) Having determined a list of possible companies, discuss the main factors that you would take into
account in selecting the final product provider, and explain why these factors are important to
the customer. (15 marks)
(Total - 25 marks)
Question 4
(a) As well as the concept of risk versus reward, there are several other factors which the investment
adviser needs to consider before making recommendations. TWO of these factors are the client's
current financial circumstances and the client's tax position.
Give two more factors, and explain what you would consider in relation to each of these. (1 0 marks)
(b) What is a unit trust, and how can unit trusts be used to satisfy clients'
needs and be of benefit to them? (10 marks)
(c) . Explain what preference shares are, and why they are higher risk than ordinary fixed
deposits at a commercial bank. (5 marks)
(Total - 25 marks)
Chapter 8
Answers to Cases
(a) Factors used in determining the maximum amount that one can qualify for under a
mortgage:-
• Income - Dave’s salary or wages only, given that Sherry Ann is still a student
• Liabilities and normal monthly expenses such as credit card debt, personal loans and
overdrafts
• Credit history - a reference from a credit agency or his bankers or credit union
• Employment status - a job letter
• Proof of income - payslip
(b) The total costs involved in purchasing a home for $250,000
• Down payment usually about 10%

• Mortgage instalment ( principal and interest)
• Annual property insurance premium
• Annual rates and taxes
• Annual maintenance costs for minor repairs
• Legal fees
• Valuation or survey fees
• Indemnity guarantee premium
(c) A mortgage protection policy recommended and its advantages and disadvantages
Decreasing term assurance where the sum assured reduces in line with the outstanding
principal on a repayment mortgage
 It is usually the cheapest form of insurance
 There is no possibility of a bonus or surplus at the end of the policy
 It caters for mortgage protection only and other policies will need to be taken out for other
purposes
(a) First Step if Gertrude is desirous of purchasing the townhouse:-
 Determine the funds she has available to make her purchase. Essentially, the amount of money
she can borrow will be determined by the size of the monthly payment she can afford. As a
general rule, lenders do not allow the monthly payment to exceed 30% to 33% of gross monthly
income.
 She will want to consider:

1. Her present income;

2. Her expected income over the next few years;
3. Her current assets (including income, savings, investments, life insurance, pensions, and
equity in other real estate, etc.) and liabilities (including outstanding loans, credit card
balances, etc.).and Outstanding long-term debt;
4 How long she expect to stay in her home.
 She can then approach mortgage providers ( commercial banks, mortgage companies, credit
unions)
to obtain details of their requirements and cost of mortgage financing
♦ Confirm that mortgage payment would meet debt serving requirements of lender e.g.
maximum of 33 1/3% of income
♦ Obtain valuation of property to compare to asking price
♦ Make the down payment usually 10% once title to the property is reasonably certain
♦ Obtain the necessary documents - job letter, purchase agreement with seller, personal
financial statement, valuation,
♦ Seek mortgage financing for up to 90% or 95% of property valuation
♦ Obtain funds to cover other charges including legal fees, mortgage indemnity insurance
premium
♦ Establish a mortgage protection policy
(b) What happens after Gertrude applies for mortgage financing ?

The lender initiates a credit check and arranges for an appraisal of the property she plans to buy [if
she had not done so already]. The appraisal assures her and the lender that the property has fair
market value and that in the unlikely event of default on the loan, the property must be worth
enough to settle the debt.
Once the credit check, appraisals and verifications are complete, this “credit package” is reviewed by
an underwriter/ credit officer who makes the loan decision. If the loan is approved, the lender will
issue a loan commitment (a binding agreement) to lend the money. The commitment spells out all the
details of the loan including all charges and fees, closing requirements, and any important conditions
including:
· A list of documents needed for closing;
· Information on when the commitment expires; and
· Important information one should know when closing on one's home.
The loan commitment may also may have certain conditions that must be meet before the loan is
granted e.g. bills to be paid off
In the case of new construction, the lender will want the appraiser to inspect the home just prior to
closing. This is to ensure that it is in accordance with the plans and specifications furnished by the
builder or contractor.
The customer and an attorney (if one chooses to be represented by an attorney) should review the
loan commitment carefully. Make sure the terms are acceptable. Assuming the terms are agreed, the
agreement with the lender is now complete.
(c) What is the APR?

This is intended to protect the public, and offers a more precise measure of the true cost of a
mortgage loan. The concept of the annual percentage rate (APR) was developed to more accurately
reflect this cost factor. The APR represents not only the rate of interest charged on the loan but
certain other pre-paid finance charges. These costs are expressed in terms of percent and may
include, among other costs, the following: origination fees, private mortgage insurance premiums,
and the estimated interest pro-rated from the closing date to the end of the month.
Please note: What may appear as a low interest rate may have other items added to increase the
effective rate to the lender. Reviewing the APR will help to determine if this type of situation exists.
When shopping for mortgage rates, one should get the APR from the lender to make sure one has an
accurate comparison to other available mortgage rates.
Case 3
(a) Why life insurance to cover the mortgage principal is usually recommended :-
If either of them dies before the mortgage is repaid the risk that the monthly instalment would not be
able to be paid form the reduced income would not exist
(b) Common policies available:-

Decreasing term assurance
Level term assurance
Non-profit endowment
With profit endowment
Unit linked
Low start
Unitized with profit
(c) Policy that would meet lender requirements and meet their needs for low costs
Decreasing term assurance where the sum assured reduces in line with the outstanding principal
on a repayment mortgage (It is usually the cheapest form of insurance)
Case 4
(a) Special low cost mortgage arrangements available for first time home owners in Trinidad
 These are usually available from The T&T Mortgage Finance. The interest rate varies with the
property being purchased
< 150,000 - 8% <200,000 - 8.5% <350,000 - 9%
 The Home Mortgage Bank and its agents offer 10%on new mortgages.
 Various companies also offer subsidized mortgage arrangements for their employees either via a
subsidized mortgage rate (e.g. 5%) or by paying the difference between the market rate and the
subsidized rate as a monthly subsidy to the employee
(b) Normal restrictions :-

 Must be a first time homeowner [should not own an existing property]
 joint salary < $ X,000
 price of home < $350,000
Case 5
a) the three reasons persons take out life insurance
 Peace of mind
 Control over availability of funds / no reliance on others
 Value of money
(b) Financial burdens which are reduced by life insurance

 Replace income
 Repay debts
 Meet /defray additional living expenses
 Completion of plans
 Provide medical treatment or care
(c) Factors to be taken into account when selecting an insurance company and why they are
important:-
 Quality of service - efficiency e.g. prompt courteous

 Financial strength - comfort for investor
 Costs and charges - the lower the better, visible or hidden costs
 Range of products required
 Investor choice & performance /Investment performance - to be able to get a good return
Case 6
(a) Factors to consider in determining the amount of cover he should purchase
 His income level
 Number and ages of the children and any other dependants
 Spouse’s ability to generate a replacement income
 Amount of any National insurance (NIS) benefits
 The amount of any likely employer’s benefits
 Availability of family or other helpers for childcare
 Amount and accessibility of any savings
 Amount of any financial liabilities
(a) Factors to consider in determining the amount of cover to be purchased for his wife
 His income level since he is the breadwinner
 The number and ages of their children
 The amount of any National insurance (NIS) benefits (does not apply in this case )
 The availability of assistance for him from family and close friends (e.g. housekeeping services)
 Costs of professional childcare and housekeeping services
 Amount and accessibility of savings
Case 7
( a) Needs covered by sickness protection
 An income to replace lost income
 An income to pay the cost of a replacement who will carry out the tasks previously carried out by
the person who has become ill
 An income to pay for continuing medical attention
 A lump sum to pay for medical treatment
 A lump sum to pay for enforced changes to environment or lifestyle
( b) Factors which affect the amount of sickness cover that should be taken out
 Duration of illness or disability
 Extent of the inability to work
 Extent to which an employer will continue to pay wages or salary (i.e. how much and for how
long)
 The additional costs which arise from the illness e.g. cost of wheel chair, home improvements
 Number and ages of children and other dependants
 Ability of spouse to generate replacement income
 Availability of volunteer help from family and friends
 Cost of hired help to assist with housekeeping /childminding or to replace other skills lost
 Extent to which income can be provided from other sources
Case 8
Main types of policies available :-
 Whole of life assurance - designed to cover the life assured for his /her whole lifetime; pays out
the amount of life cover in the event of death once policy is in force
 Term - generally sum assured is payable only if the death occurs within a specified period of
time [the term]
 Critical illness cover - provides a lump sum payment on the diagnosis of one of a specified
range of illnesses or medical conditions
 Permanent health insurance - provides replacement income in the event of the individual being
unable to work due to illness, disability or accident
 Private medical insurance - provides an individual with access to private medical treatment
rather than being dependant solely on NIS benefits and pay for the costs of medical treatment
such as ambulance fees, hospital charges, specialist fees and nursing care.
 Property and casualty insurance – insurance written to cover property and liability as opposed
to life and health insurance. Casualty insurance – insurance covering legal liability for personal
injuries or damage to property of others. Casualty is a term used to define all classes outside the
definition of property insurance. A property and casualty company would handle all forms of
insurance other than life and health. Property insurance – insurance of real and personal property
against physical loss or damage.
Case 9
(a) Distinguish between an investment and a saving account
Savings - the periodic setting aside of money from income, usually with the intent to build capital
Investment - the use of capital that is a lump sum to produce either or to generate capital growth or
both.
(b)Reasons why people invest -

• Short term emergencies
• Specific purchases e.g. a new car
• A feeling of security (rainy day provision)
• Retirement
• Loan repayment
• Providing a capital sum e.g. school fees, wedding, gifts to children
c) Difference between an income producing investment and a capital producing investment
An income producing investment provides an income over the period of investment e.g. Unit Trust
second scheme. Where interest payments are classified and taxed as income
A capital producing investment is designed to produce capital growth e.g. Unit Trust First Scheme
Case 10
a) Questions to ask Cheryl to determine what is the most appropriate investment
instrument :-
• Does she currently require an income from her investments to supplement her standard of
living?
• Would a static income or a growing income be required to maintain her standard of living?
• Is it necessary for her to have specified amount of income on a specified date?
• With what frequency is income required?
• What access to her capital does she need now and in the future?
• What imminent major purchases does she have?
• Is she saving for a specific purpose e.g. annual vacation and if so when will money be
needed?
• What level of risk is she prepared to accept?
(b) Criteria to base recommendations :-

• Risk profile - does it match her attitude to risk
• Income expectation - relative yield of each investment versus the income she expects
• Growth prospects - expectation for capital growth
• Accessibility - ease of withdrawal of funds, conversion of investment into cash
• Tax efficiency - are there any tax benefits e.g. reduced tax on interest or dividends or
deductions for qualifying annuities
Case 11
(a) Five factors to consider :-
• Current financial circumstances - how much capital or income is available to start or
continue savings and investing and to what extent
• Tax position - both current and possible - what is the clients’ vision of his financial future
and his anticipated future needs
• Need to realise the investment - will it be before the end of its planned term
• Attitude to risk - recommendations must be in line with client’s attitude for low-risk for
high-risk investments
b) Difference between the three categories of investments :-
Deposit based investments - the capital element is fixed but the income from the investment may
vary
Fixed interest investments - the interest rates and income element of the investment are fixed e.g.
Annuities, Government bonds
Asset backed investments are those investments which are backed by underlying assets. Both the
interest and the capital element are variable and neither are normally guaranteed.
Case 12
(a) Criteria to judge deposit based accounts suitability to a particular client
- risk profile
- income expectation
- growth prospects
- accessibility
- tax efficiency
- understandable
- charges / costs
(b) People generally invest in asset backed investments for the following reasons :
• Accessibility to the expertise of fund managers
• Ability to switch between various types of funds
• Administration is simple
• Offers greater than average / higher returns versus other investments
• To balance / diversify their portfolio risk
• For tax efficiency
(c) (1)The main advantages of life assurance investments

• Provides access to competent investment managers who manage the fund; such accessibility
is not normally available to the small investor.
• Ability to invest any amount the investor chooses and as often as is desired
• Access to money within the policy on a loan basis or by way of a full or partial surrender
• Offers small investors access to investments which may provide a balanced spread and
consistent returns
• Simple administration
• Provides life cover for dependants in the event of death
(c) (II) The main disadvantages of life assurance investments are :-

• Are not recommended to meet short term objectives since they are really medium to long
term investment vehicles
• The tax treatment of underlying funds ( may not offer the most attractive tax benefits)
Case 13
(a) List of questions to form basis of fact find
 At what age does Gary wish to retire?
 What income will he need at retirement?
 What level of dependant’s pension will be needed?
 What percentage of current income does the pension need equate to ?
 How much of this pension need is already provided for through - state pensions, employer
pension schemes, retained benefits from previous employment, personal pension provision, other
sources?
 What is the gap between current provision and the amount needed?
 If the shortfall is not funded does Gary appreciate the potential impact on his standard of living?
(b)Documents that Gary should walk with:-

• Payslips
• Tax returns
• Life assurance / insurance policy documents
• Mortgage statement
• Details of bank accounts, other investments
• Loan account details - with banks, credit cards, credit unions, hire purchase
• Pension statement
• Pension scheme booklet
• A will
• Trust documents
• Property valuation
• Personal financial statement [showing assets and liabilities]
Case 14
a) Pension options and typical benefits
 The state – old age pension scheme and National Insurance System
Old age pension scheme – individual must be over age 65 ; receives $1000 monthly if income <
$100 and $900 monthly if >$100 and <$720. Thus she would not qualify for same given her income
levels.
National Insurance System – individual qualifies between age 60 and 65 years if retired. A basic
pension is paid plus increments and range from $50 to $243 weekly depending on the Earnings class.
 Her employment plan

Generally these can be Contributory or non –contributory and defined benefits or defined
contribution.
Contributory - both employer and employee make contributions
Non contributory plans - only employer pays
Defined benefit - benefit is defined usually in terms of ‘final salary’ e.g. factor per year
worked times number of years service times final salary
Defined contribution - are identified and on retirement the accumulated fund is then used to
purchase whatever benefits they can afford
Usually an employee will seek to allocate a percentage of monthly income e.g. 5% towards their
pension
 Individual scheme
Individuals are free to establish individual schemes to meet their retirement needs outside of National
insurance (NIS) and employment plans. Tax deductions up to a maximum of $12,000 are available
annually for the total of all 3 sources. If Gloria wishes to maximise her tax deductions of $12,000:-
- her employment plan = 5% of $100,000 = 5,000
- NIS = 22.68 x 52 weeks x 70% =825
- Balance =12000-825-5000 =6175
There are various products available from commercial banks and Insurance Companies which meet
BIR criteria for annuities / pensions. Gloria can of course invest more than the $6,175 annually in
these plans and not choose to be limited by the maximum tax deduction.
.
b) Main changes that occur at retirement
• No more work
• Time
• Expectations
• Loss of earned income
Case 15
a) Additional information needed
- At what age does she wish to retire
- What income will she need at retirement
- What level of dependant’s pension will be needed if any
- What percentage of current income doe the ‘pension need ‘ equate to
- How much of the ‘pension need’ is already provided for
- Calculation of the gap = amount needed less current provision
- How will the shortfall be funded
b) Calculate the shortfall

She wishes to retire in 10 years at 55 years
Monthly income gross up for tax = [10,000 –4000]/.65 =9230
Monthly shortfall =9230 – 2000-700-700 =5,830 monthly
GAP =5830 monthly x appropriate annuity factor assuming escalating pension at 3% (12.6 if 3% per
annum) x factor for inflation compounded for agreed no of years ($2.91 if 3% for 30 years)
GAP = 5830 X 12.6 X 2.91= 213,762.80
Note NIS benefits will not fall due until age 60

Case 16
a) Major types of benefits under National Insurance /(b) Maximum amount payable (c) Any
special restrictions
 Sickness
Payable to an insured person who loses earnings because he/ she is incapable of work due to
illness.
It ranges between $63 for Class I and $486 for class XII over a maximum of 52 weeks. Beyond
52 weeks one must apply for Invalidity benefit.
 Maternity
The benefit is paid up to 13 weeks to insured women who lose earnings as a result of pregnancy.
It ranges between $63 for Class I and $486 for class XII. A grant of $1,000 is also payable
whether or not earnings is lost.
 Pension
Individual qualifies between age 60 and 65 years if retired. A basic pension is paid plus
increments and range from $50 to $243 weekly depending on the Earnings class
 Death – the survivor’s benefit is paid to the survivors of a deceased insured person usually the
widow, widower, children, step-children, adopted children, orphans or dependant parents. No
benefit is payable if the deceased received a retirement grant before his death. The Basic weekly
payment ranges from $15 to $30 for Class I to $72.90 t ;o $145.80 for Class XII.
 Injury benefit
This benefit consists of injury, disablement and death benefits as well as medical expenses.
The injury benefit is payable to an employee who cannot work as a result of an accident or
disease arising from his employment
The disabled benefit represents compensation for loss of physical and mental faculty and includes
disfigurement
Medical expenses up to $15,000 are paid to cover the cost of medical treatment for the injury or
disease
The death benefit is paid if death occurs as a result of the accident or prescribed disease.
SAMPLE EXAMINATION 1
Suggested Answer 4
This question was in 3 distinct parts, ranging across a number of topical and important
subject areas which candidates should be well-versed in when giving investment advice.
(a) Features of a money market fund and an income and growth fund and how they
differ
• Money market fund – the investment policy is directed towards a high income consistent
with security capital. Generally they pay interest or dividends periodically but no
capital gains accrue. e.g. a $20 unit pays interest every quarter but it value is always $20
• Capital or growth funds – funds are invested in those sectors of the market and in those
shares which are believed to offer prospects for capital growth
♦ Income and growth funds – have ‘middle of the road’ investment strategy aimed at
securing a combination of capital growth and a good income. The investor receives a
periodic dividend and also benefits when the capital value of the fund increases. E.g. a
$20 unit can pay a 3% dividend twice a year and over time its value can increase to $25.
(b) Features of investment bonds:
• Lump sum investment.

• Managed by life company.
• Lump sum used to purchase units in a selected fund.
• Broadly [in simplistic terms] value of fund is unit price x number of units.
• Income produced is reinvested, thus accumulates.
• Capital growth hoped for.
• Generally, ease of encashment.
• Normally has benefits of switching..
• Can make withdrawals.
• Can segment [divide into number of policies].
(c) Questions to be asked are:
• What is likely to be needed in the short term?

• Is there likely to be any capital expenditure in the short term?
• What is your attitude to risk?
It is necessary to ask such questions:
♦ To achieve the correct balance/amount/proportion.

♦ Because one persons needs are different from others.
SAMPLE EXAMINATION 2
Suggested Answer I
This question sought to test understanding of mortgage and other related technical matters
covering a range of commonplace aspects and features.
(a) A lender will take into account things such as:
♦ income; in the form of profits for Gerard, as he is self-employed;

♦ suitable proof of business income;
♦ liabilities; both business and personal;
♦ credit history; both business and personal;established by accounts and references.
'Income multiplier' means, and typically might be:

• the number of times income which can be borrowed; e.g. three times income could be
borrowed.
(b) The other basic type is, and its features are:
• the repayment mortgage;

• monthly payments are partly interest and partly repayment of capital;
• given a constant interest rate, repayments are the same for the whole mortgage term;
• if rates rise/fall payment is increased/decreased; or • term could be shortened [unlikely]
or lengthened.
(c) Another product:
• the pension mortgage;
Pension mortgage:
• may suit because young, self-employed; thus,

• should take out pension, and can afford one;
• at repayment/retirement, maximum [normally] of fund taken as lump sum;
• maximum allowable is 25% of fund;
• this lump sum repays, wholly or partly, the mortgage loan;
• remainder of fund taken as pension.
Suggested Answer 2
This question was asked to establish whether candidates were able to apply their knowledge
of a number of types of investment in different situations, ranging from the safe to the risky,
and in a tailored, measured manner, with the individuals' circumstances taken into account
properly.
(a) It has been taxed because:
• payments are treated as part capital and part interest/income;

• capital is tax-free for any securities in T&T;
• interest/income part is treated as income for tax purposes.
The basis is:
♦ that tax is obliged to be deducted at source;

♦ and normally/generally at 35%, [lower tax payers can qualify for 28%]
(b) A suitable product and its characteristics:
· an Investment rated bond e.g. Home Mortgage Bank bonds or corporate bond
· lump sum investment with 5 year term;
· may offer guaranteed interest rate;
· with interest added to capital;paid gross and taxable.
(c) Long term investment of $17,000 :

• shares in local stock exchange, purchase of unit trusts, investment trusts, corporate bonds.
[does not meet tax criteria];
• Investment in approved ‘Venture capital’ projects or companies; opening of a flexible
annuity [ will meet tax criteria]
(d) Dividends are taxed, and tax will affect him, as follows:
• there are two rates, lower taxpayers [assessable income <50,000 ] 28% and 35% for those
with income > 50,000
(e) Options provide
•
the right to buy or sell, and investment at a fixed price ;
at a fixed future date or within a set future period
♦
♦ at a premium (price)
♦ option can b exercised or allowed to lapse
♦ loss of premium / more if keeping ‘book’
Suggested Answer 3
T'he aim of this question was to establish whether candidates were able to give a well-
presented, technically accurate, and clearly explained answer to three precise and related
issues.
a) People take out protection products for:
♦ peace of mind;
♦ control/availability of funds/no reliance on others ( e.g. State);
♦ value for money.
Protection products satisfy these requirements because:
• dependents will not face hardship [or mitigated],

• those left can make choices.
(b) Protection products can help because:
• they can replace, in whole or part, income;

• they can go to repayment of debts;
• they can meet/defray living expenses;
• to provide medical / other care;
• to enable plans to be completed.
b) (i) Providers can be rejected because:
♦ what is required is not available;

♦ underwriting is not suitable, because expensive and/ or exclusions;
♦ client has preferences for certain types of company.
(ii) The main factors in selection, and their importance, include:
• Quality of service; efficiency [e.g. rapid, accurate, etc. responses].

• Investment performance; vital for good return.
• Range of suitable products required.
• Financial strength; comfort of the 'backing/support' this offers.
• Costs and charges; all other things being equal, costs to be as low as possible;
• costs to be 'visible' [transparency].
Suggested Answer 4
Part (a) required explanations of technical issues that must be considered as the precursor to
offering advice.
Parts (b) and (c) examined candidates' ability to explain the nature of two specific products.
(a) Two other factors are:
[Note: Any two of the following three are acceptable.]
1) The client's future financial circumstances. (See I below.)

2) The client's attitude to risk. (See 2 below.)
3) The client's need to realise the investment. (See .3 below.)
1) Consider such as:
• timescale;
• objectives; • such as family/children;
• what will be able to afford.
(2) Consider such as:
• purpose of investment(s) required;

• period for which investment required;
• amount available for investment;
• level of risk.
(3) Consider such as:
· when to be realised;if possibly may have to be realised sooner than maturity;

· penalties;
· generally, change(s) in circumstances.
(b) A unit trust is:
♦ a collective investment scheme;

♦ which is a trust;
♦ divided into units.
(c) Preference shares are

♦ a part of the share capital of a company
♦ rank before ordinary shares both for dividends and on the winding up of the company
♦ dividends are normally fixed
♦ they are riskier than a ordinary fixed deposit at a commercial bank because dividends
are payable out of profits/ retained earnings and there is no guarantee that the firm /
company will generate profits each year.

Cefa Case Book1

Uploaded by

Document Information

Original Description:

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Cefa Case Book1

Uploaded by

Copyright:

Available Formats

Certificate for Financial Advisers

THE INSTITUTE OF BANKING AND FINANCE

CERTIFICATE FOR FINANCIAL ADVISERS

Preface : Introduction to cases 3

Chapter 1 : Mortgages Cases 1- 4 4

Chapter 2 : Insurance Cases 5-8 8

Chapter 3 : Financial Products Cases 9-12 12

Chapter 4 : Retirement Planning Cases 13- 16 16

Chapter 5: Consumer Credit Cases 17-20 20

Chapter 6 : Sample examination 1 24

Chapter 7 : Sample examination 2 27

Chapter 8 : Suggested Answers 30

other reasons for the use of cases are :-

 Provide a space to think about practice

 Raise the level of critical thinking skills

 Prompt deeper diagnosis and meaning making

 Help learners connect theory and practice

effectively by the use of cases.

thereafter compare their responses with the solutions given.

(a) Questions to ask Lionel and document(s) required:

• For how long has he been a member of the scheme?

(b) General issues for Sumintra to have in mind are:

♦ When might she wish to retire?

(c) Sumintra can be informed and advised as follows:

Gertrude has approached you for advice on :-

• They may beat inflation./ •They may provide dividends.

(b) The main risks are:

• Loss of all or part of the amount invested./• Sector.

(c) The taxes are:

• Income Tax /• Capital Gains Tax

They are levied on:

The rates are:

(d) Disadvantages of investing in commercial property

♦ Bad location [now or later becomes a bad location]

(a) (i) Critical illness

• Provides a lump sum on diagnosis of one of a given range of illnesses.

(ii) Permanent health:

• Provides [replacement] income, where insured unable to work because of illness,

(iii) Private medical insurance:

• Provides private medical treatment.

(b) The one to be suggested is:

a) The three reasons why persons take out life insurance

Make short notes to assist you in your presentation :-

(a) What needs are covered by ‘sickness’ protection

Make short notes explaining the following:-

David has approached you to advise him on consolidating his debts.

Time allowed, THREE hours

Now, address the following:

- Why people take out protection products.

• Down payment usually about 10%

(a) First Step if Gertrude is desirous of purchasing the townhouse:-

 She will want to consider:

1. Her present income;

(b) What happens after Gertrude applies for mortgage financing ?

(c) What is the APR?

(b) Common policies available:-

(b) Normal restrictions :-

(b) Financial burdens which are reduced by life insurance

 Quality of service - efficiency e.g. prompt courteous

(b)Reasons why people invest -

c) Difference between an income producing investment and a capital producing investment

(b) Criteria to base recommendations :-

(c) (1)The main advantages of life assurance investments