Generic Questions

Question 1

List the advantages of receiving advice from an IFA (8)

Answer 1

(1) Your objectives and priorities are identified
(2) You benefit from adviser research
(3) You receive help with budgeting
(4) Your existing arrangements are assessed
(5) You receive help with tax planning
(6) Your ATR is assessed
(7) You receive regular reviews
(8) You benefit from consumer protection/regulation

Question 2

What are the advantages of paying IFA fees by the hour? (4)

Answer 2

(1) It is familiar and similar to other professionals
(2) It is easily understood and compared
(3) It is based on the work actually undertaken
(4) A fee cap may apply

Question 3

What are the disadvantages of paying IFA fees by the hour? (4)

Answer 3

(1) The adviser may run up clock
(2) It deters contact
(3) It is paid from personal funds
(4) It is an unknown cost

Question 4

What are the advantages of paying IFA fees through your investments? (4)

Answer 4

(1) A volume discount may apply for large funds
(2) It is not paid from personal funds
(3) The adviser is incentivised to grow the fund
(4) It is attractive for small funds

Question 5

What are the disadvantages of paying IFA fees through your investments? (4)

Answer 5

(1) It is an unknown cost
(2) It is not based on the work actually undertaken
(3) There may be additional charges for extra services
(4) It reduces growth

Question 6

What are the advantages of paying fixed IFA fees? (4)

Answer 6

(1) It is familiar and similar to other professionals
(2) It is easily understood and compared
(3) It is a known cost
(4) It is attractive for large funds

Question 7

What are the disadvantages of paying fixed IFA fees? (4)

Answer 7

(1) It is not based on the work actually undertaken
(2) It is paid from personal funds
(3) It deters contact
(4) There may be additional charges for extra services

Question 8

Describe the process an IFA should follow when providing advice (8)

Answer 8

(1) Establish the relationship and confirm the scope of service
(2) Determine their objectives, priorities and ATR
(3) Assess their existing arrangements
(4) Research your recommendations
(5) Present your recommendations
(6) Provide a report and the regulatory documents
(7) Implement your recommendations
(8) Review the financial plan regularly

Question 9

Identify the factors that typically influence a client’s ATR as they approach retirement (9)

Answer 9

(1) Age and timescale
(2) Health and longevity
(3) Income and expenditure
(4) Assets and liabilities
(5) Income and capital required in retirement
(6) State pension and benefit entitlement
(7) Investment experience
(8) Objectives and priorities
(9) Economic climate and market conditions

Question 10

Explain the importance of reviewing a client’s ATR regularly (6)

Answer 10

(1) It changes with their objectives
(2) It changes with their investment experience
(3) It changes with their health and circumstances
(4) It changes with their income and expenditure
(5) It changes with their age
(6) It changes with the economic climate and market conditions

Question 11

What are the three aspects of ATR? (3)

Answer 11

(1) Risk tolerance
(2) Investment knowledge
(3) Capacity for loss

Question 12

List the features of active fund management (4)

Answer 12

(1) Performance relies on the manager’s skills
(2) The manager can avoid certain sectors and regions
(3) The manager can invest more freely than in passive funds
(4) There are higher fees than in passive funds

Question 13

List the features of passive fund management (4)

Answer 13

(1) A computer replicates an index without outperforming it
(2) The fund will underperform the market due to charges
(3) There are lower fees than in active funds
(4) There is no scope for human error

Question 14

List the features of an advisory fund service (5)

Answer 14

(1) The manager ascertains the client’s ATR and a suitable AA
(2) The manager makes recommendations
(3) The client decides whether to proceed
(4) The manager charges based on the recommendation
(5) The manager provides an end-of-year statement

Question 15

List the features of a discretionary fund service (7)

Answer 15

(1) The manager ascertains the client’s ATR and a suitable AA
(2) The manager buys and sells on the client’s behalf
(3) The client specifies whether they wish to avoid sectors
(4) A trading limit may apply
(5) The manager charges based on the overall portfolio’s value
(6) There are higher fees than in an advisory service
(7) The manager provides an end-of-year statement

Question 16

List the advantages of using a DFM (5)

Answer 16

(1) They may outperform the market
(2) The approach is bespoke to you
(3) There is no ongoing administration
(4) They use a wide range of assets and funds
(5) They provide a consolidated tax statement

Question 17

List the disadvantages of using a DFM (5)

Answer 17

(1) There are large fees
(2) They may not outperform the market
(3) You lack control
(4) They may invest in undesirable funds
(5) They may not consider your broader financial planning

Question 18

List the benefits of holding investments on a platform (12)

Answer 18

(1) Transfers and switches are quick and easy
(2) You have online access at all times
(3) You receive consolidated valuations
(4) You can access a wide range of funds
(5) Performance is easy to track
(6) You receive consolidated tax statements
(7) It promotes a good relationship with your adviser
(8) There is a simple charging structure
(9) There are no initial charges
(10) You may receive a volume discount for large funds
(11) Administration is reduced
(12) You benefit from automatic rebalancing

Question 19

List the main benefits of diversifying a portfolio (4)

Answer 19

(1) It reduces volatility
(2) It increases capital growth potential
(3) It can be easily rebalanced
(4) It can match your ATR

Question 20

List the limitations of using an AA model (4)

Answer 20

(1) It does not consider tax wrappers
(2) It does not consider charges
(3) Its underlying assumptions may be incorrect
(4) It must be rebalanced regularly

Question 21

What must an investment policy statement state? (5)

Answer 21

(1) The investment’s purpose
(2) The investment’s income and growth objectives
(3) The investment’s timescale
(4) The investment’s AA
(5) The client’s ATR

Question 22

Explain how income protection works (8)

Answer 22

(1) You receive a tax-free income if you are unable to work
(2) A deferral period will apply
(3) Rehabilitation benefit may apply
(4) Proportionate benefit may apply
(5) There are no limit on claims
(6) The income is limited to 50-65% of your employment income
(7) It can cover your own occupation or any occupation
(8) Premiums can be guaranteed or reviewable

Question 23

Explain how PMI works (9)

Answer 23

(1) It covers the cost of private treatment
(2) It includes home nursing and a private ambulance
(3) It may include alternative medicine and dental care
(4) It covers acute conditions only
(5) You may need to pay an excess or co-payment
(6) An indemnity policy may apply
(7) Basic, standard and comprehensive packages are available
(8) It counts as a benefit-in-kind if it is covered by an employer
(9) A statement of best practice applies to sales

Question 24

Explain how salary sacrifice works (7)

Answer 24

(1) A written agreement is signed with your employer
(2) The employer reduces your gross salary by an agreed amount
(3) Your net salary is often unchanged
(4) The reduction is treated as an employer contribution
(5) It reduces your income tax liability
(6) It reduces employer and employee NICs
(7) There is no additional administration for the employee

Question 25

List the advantages of salary sacrifice (5)

Answer 25

(1) It increases pension contributions
(2) It reduces your income tax liability
(3) It reduces employee NICs
(4) Your employer may add the NICs they saved to your pension
(5) It often does not reduce your net salary

Question 26

List the disadvantages of salary sacrifice (4)

Answer 26

(1) Your gross salary is reduced
(2) It may reduce your borrowing capacity
(3) It may reduce your income protection benefit
(4) It may reduce your entitlement to employer benefits

Question 27

List the advantages of drawdown compared to an annuity (7)

Answer 27

(1) Your income is flexible
(2) Your income is not affected by annuity rates
(3) The balance is left invested
(4) The balance is tax-free if you die before 75
(5) There is a wider range of death benefits
(6) It allows for broader tax planning
(7) You can purchase an annuity at a later date

Question 28

List the disadvantages of drawdown compared to an annuity (6)

Answer 28

(1) It requires ongoing management
(2) There are ongoing charges
(3) You trigger the MPAA
(4) The balance is exposed to investment risk
(5) Your income is not guaranteed
(6) Legislation on pension freedoms may change

Question 29

List the advantages of UFPLS (5)

Answer 29

(1) Your withdrawals are flexible
(2) It allows for precise tax planning
(3) The balance is left invested
(4) The balance is tax-free if you die before 75
(5) It is simple and easy to operate

Question 30

List the disadvantages of UFPLS (4)

Answer 30

(1) The balance is exposed to investment risk
(2) You trigger the MPAA
(3) You must reclaim any excess tax paid
(4) You must consider market timing

Question 31

List the duties of an executor (6)

Answer 31

(1) Determining the estate’s assets and liabilities
(2) Paying the estate’s debts
(3) Paying the estate’s taxes
(4) Completing the estate’s accounts
(5) Applying for probate
(6) Distributing the estate accordingly

Question 32

List the duties of a trustee (9)

Answer 32

(1) Administering the trust’s assets
(2) Holding title documents for the trust’s assets
(3) Acting in the beneficiary’s interest
(4) Investing the trust’s assets wisely
(5) Monitoring the trust’s assets regularly
(6) Considering standard investment criteria
(7) Avoiding conflicts of interest
(8) Displaying utmost diligence
(9) Completing the trust’s accounts

Question 33

Explain how an LPA works (8)

Answer 33

(1) The two types are property/finance and health/welfare
(2) The two types can have separate attorneys
(3) The donor must have mental capacity to grant it
(4) The donor can void it at any time if they have capacity
(5) It is not voided when the donor loses capacity
(6) The donor can appoint replacement attorneys
(7) The donor can appoint attorneys that act jointly
(8) It must be registered with the Office of the Public Guardian

Question 34

Identify the common transactions an attorney can make on behalf a donor (5)

Answer 34

(1) Pay bills
(2) Claim benefits and pensions and make insurance claims
(3) Operate bank accounts
(4) Buy or sell assets
(5) Make gifts (with restrictions)

Question 35

Explain how a DGT works (12)

Answer 35

(1) It immediately reduces the value of the donor’s estate
(2) The discount is underwritten on the basis of age and health
(3) A larger discount is awarded if the donor is in good health
(4) The donor loses access to its capital but receives a fixed income
(5) Any growth on its capital accrues outside the donor’s estate
(6) It is held in a discretionary trust
(7) Periodic and exit charges apply
(8) Its capital passes to the beneficiary on death
(9) It is treated as a CLT
(10) The donor pays no immediate IHT if it is below their NRB
(11) It is IHT-free in 7 years
(12) An investment bond is often used as the wrapper