Deborah and Peter Brown have been clients of your bank for a number of years. They have
Question:
Deborah and Peter Brown have been clients of your bank for a number of years. They have made an appointment to discuss their financial matters with you .
Peter aged 53, is a senior manager in a pharmaceutical company earning £70,000. Peter is a member of the defined benefit pension scheme with his employers. Deborah aged 52, is a self-employed beautician, her income last year was £33,000. Deborah has a personal pension plan. They have a son, Michael and a daughter Andrea who are in first and third year of university, they both live away from home during term time in rented accommodation.
The Browns own a 5-bedroom house which is valued at £600,0000. They have a repayment mortgage with your bank which has 12 years remaining and a balance of £120,000 outstanding.
The Browns, have been careful savers and their balances with your bank are as follows:
Joint Current Account £7,250 CR
Joint Instant Access Deposit Account £22,500 CR
Joint 90 Day Notice Deposit Account £92,000 CR
They both have Individual Savings Accounts (ISAs), which they have held for several years. They have not always used their maximum allowances for the tax year. The balances on these accounts today are:
1.5% Cash ISA in the name of Peter Brown £ 22,860 CR
1.5% Cash ISA in the name of Deborah Brown £ 24,720 CR
Deborah inherited 25,000 ordinary shares in a competitor bank on the death of her grandmother, these shares have a current value of £12,500.
They both have credit cards, but they very rarely use them and neither of them have an outstanding balance on them.
They are coming to discuss have a review of what they have and discuss a number of other financial issues. They have let you know that Deborah has been informed by one of her suppliers that they will no longer accept cheques as a means of payment.
1. Deborah starts the appointment by informing you that she is finding it very difficult to find a way for supplies for her beautician business as they are now all moving away from receiving cheques. She is unsure what alternatives she can use as she does not want to pay by cash. Explain to Deborah what options she can use other than cash. You should consider the fact that she does not use her credit card.
2. Peter is concerned that their savings accounts are not making as much interest as they could and wants to discuss other options that are available. He has indicated that they would like to save a monthly amount of £300 and wants to know what is available. He knows that the way interest is paid has changed, however he does not understand how it works.
Discuss with the Taylors what options they have for their existing savings accounts and the additional £300 they wish to save.
Explain to them how interest is now paid and the personal savings allowance.
3. Peter and Deborah are aware that Andrea will graduate in the next few months, she has already secured a job in Liverpool. They want to give her £15,000 for deposit and fees towards buying a flat and would like to look at borrowing this rather than using their savings. They do not want to be paying for this long term.
You know that the Browns are a good credit risk, so what lending product would be most suitable for them.
Explain the key features of this product.
4. Peter and Deborah are concerned that if they take on this additional borrowing, they may not be able to afford the repayments if they did not have Deborah's earnings coming in. Peter asks what kind of insurance they could take out to give them protection. He had informed you that he wants to keep the premiums as low as possible. He has cover through his work in relation to his own contributions to the repayments.
State two personal financial protection that could be taken out to meet their needs and explain how each works.
5. Peter and Deborah have no life cover apart from cover Peter has through his work which is for £100,000.They know this is not enough and want to increase this. They ask for advice on what they should consider when comparing life insurance products.
State at least five factors they should be looking at when comparing life insurance products.
6. Since Deborah inherited the shares from her grandmother which are quoted on the London Stock Exchange, she has not had any dividends as they previous payment was paid to her grandmother. She is due a dividend in four months' time and Deborah asks you what the tax position will be in respect of any dividends she receives.
Explain to Deborah how dividends are paid and how the tax is collected on these dividends.
7. Peter and Deborah know that their pension plans are slightly different but are unsure how their two schemes work.
Briefly Explain to them the features of defined benefit and personal pension plans.
8. Having experienced the financial crash and losing money when Northern Rock failed. Peter and Deborah are worried about what would happen if there was another crash as they have both deposits and shares in banks.
Explain to them how the Financial Services Compensation Scheme works and the limits that are available. Make comment on what might happen to their portfolio if there was a crash.
Cost Management Accounting and Control
ISBN: 978-0324559675
6th Edition
Authors: Don R. Hansen, Maryanne M. Mowen, Liming Guan