MOCK EXAM Flashcards
Invesco LTD is a UK-based insurance company. How can an insurance company help reduce the UK payment deficit?
Select one:
a.Through the purchase of gilts from the government
b.By lending more money to individual UK borrowers
c.By providing a home for short term savings
d. By offering a wide range of insurance services
Borrowing money is one of the ways the UK government reduces the UK payment deficit. One way this is achieved is through the issue of gilts to large investors, such as pension funds and insurance companies.
The correct answer is: Through the purchase of gilts from the government
A couple with children aged 12, 15, 17 and 19 wish to start cash ISAs from the current tax year. What is the maximum monthly contribution for this family (please exclude JISAs)?
Select one:
a.£2,500.00
b.£3,333.33
c.£5,000.00
d.£6,666.66
An individual must be 16 or over to set up a cash ISA. In this family 4 individuals meet this age criteria; the couple plus their 17 and 19 year-old children. The maximum annual ISA contribution is £20,000 x 4 ÷12 months= £6,666.66.
The correct answer is: £6,666.66
Peter and James are the same age and are retiring shortly. They have the same size pension fund and are looking to purchase an annuity. James’ annuity is lower than Peter’s because?
Select one:
a.James is single whereas Peter is married
b.Peter has requested a level annuity, and James has requested an index-linked annuity
c.James has requested a level annuity, and Peter has requested an index-linked annuity
d.Peter has requested annual income in advance whereas James has requested annual in arears
The more options built into an annuity; the lower the initial income levels will be. The most expensive option in comparison to a level annuity, is index-linking. If James requests an index-linked pension and Peter a level payment, James’ income will be substantially lower to start off with. Their marital status is irrelevant unless they are requesting a spouse’s income. Even if they were, the addition of continued income for Peter’s spouse would reduce his initial income level, not increase it.
The correct answer is: Peter has requested a level annuity, and James has requested an index-linked annuity
The Financial Conduct Authority (FCA) sets out a variety of threshold conditions in its Handbook. Which of the following BEST describes how these conditions must be viewed by an authorised person?
Select one:
a.
They are discretionary and only applicable to SM&CR firms
b.
An authorised person must adhere to them whilst applying for Part 4a permission
c.
They must be and must continue to be met by an authorised person
d.
They relate to anyone carrying out a controlled function
FCA threshold conditions must be and must continue to be met by all authorised persons. Otherwise they run the risk of Part 4a permissions being removed
The correct answer is: They must be and must continue to be met by an authorised person
Why does a rise in government expenditure have a greater beneficial effect on the economy than a reduction in taxation?
Select one:
a.
Tax reductions lead to a decrease in consumer spending, which does not stimulate the economy
b.
A rise in government expenditure is always spent on importing goods from abroad
c.
Tax reductions mean a greater feel good factor but rarely lead to increased consumer spending
d.
Government increases in expenditure are concentrated in supporting UK companies providing goods and services, which leads to employment and profit stimulation
A reduction in taxation is likely to lead to higher consumer spending, which cannot be easily controlled and channelled into UK goods (it can be spent elsewhere), whereas a rise in government spending can be targeted at UK companies, leading to higher employment and potentially larger profits.
The correct answer is: Government increases in expenditure are concentrated in supporting UK companies providing goods and services, which leads to employment and profit stimulation
Jane’s income is about to reduce. She has an interest-only mortgage, a credit card debt of £4,000 with interest charged at 18.9%, and a cash ISA of £22k. Which of the following actions would you recommend to Jane?
Select one:
a.
Pay her credit card with cash from her ISA
b.
Set her ISA interest against her mortgage interest
c.
Take out a secured loan to fund short term needs
d.
Change her mortgage to capital and interest
Of all the options open to Jane, the one that would save her the most money would be using her cash ISA to repay her credit card debt. She is being charged 18.9% interest and is unlikely to be getting anywhere near this from her cash ISA
The correct answer is: Pay her credit card with cash from her ISA
The Financial Stability Report is a document published twice a year. Which of the following bodies is responsible for this?
Select one:
a.
Financial Crime Agency
b.
Financial Policy Committee
c.
Financial Conduct Authority
d.
Financial Action Task Force
The Financial Policy Committee publishes the FSR twice a year on behalf of the Bank of England.
The correct answer is: Financial Policy Committee
How does the UK government raise money?
Select one:
a.
Through imposing fines
b.
Taxes and borrowing
c.
Via wholesale markets
d.
Through insurance premiums
The UK government raise money via taxes and borrowing
The correct answer is: Taxes and borrowing
A retail client makes a claim to the FSCS in the current tax year, for 3 individual amounts of £60,000 relating to a bank deposit, car insurance plan and a home finance plan. What is the maximum compensation the client can expect to receive?
Select one:
a.
£180,000
b.
£171,000
c.
£170,000
d.
£168,000
A
Deposits are 100% protected up to £85,000, so £60,000 compensation will be received. Car insurance is compulsory, so is 100% protected, giving another £60,000. A home finance plan is covered up to the first £85,000, giving another £60,000, so total FSCS protection is £180,000
Anna has a renewable term assurance plan. She has asked you to explain what options this gives her. Which of the following statements is the most accurate?
Select one:
a.
The sum assured can be increased at a fixed rate, without further health evidence
b.
The expired policy can be replaced with one identical, without further health evidence
c.
The policy can be converted into either a whole of life plan or endowment
d.
Guaranteed increases can be included subject to underwriting
Renewable term assurance means that the term plan can be renewed without health evidence for another plan, at its term end, for the same sum assured. Premiums are likely to increase though, as the client is older at renewal.
The correct answer is: The expired policy can be replaced with one identical, without further health evidence
Peter has been self-employed all his working life and is now approaching state pension age. Which of the following state pensions is he MOST likely to be entitled to?
Select one:
a.
Single-Tier State Pension
b.
Graduated Pension
c.
State Earnings-Related Pension
d.
State Second Pension
Since 2016/17, there is only one type of State Pension and that is the Single Tier State Pension. All the old earnings-related state pensions such as the Graduated Pension, SERPS and S2P no longer exist for individuals now reaching state pension age.
The correct answer is: Single-Tier State Pension
John transferred £500,000 into a trust eight years ago. He appointed two trustees and named three beneficiaries. Why are the trust assets still liable to inheritance tax?
Select one:
a.
John is one of the trustees
b.
John is one of the beneficiaries
c.
The trust is an absolute one
d.
The trust is a bare one
John must be one of the trust beneficiaries. This will mean that the trust transfer is classed as a gift with reservation as John is still benefitting from the trust assets. They will therefore still form part of his estate for inheritance tax.
The correct answer is: John is one of the beneficiaries
Joe is an IFA. He does not currently have a specialist pension transfer qualification. Which of the following pension products can he give advice on?
I. FSAVC to a personal pension
II. Defined benefit to a stakeholder
III. Defined contribution to a SIPP
IV. Added years AVC to a retirement annuity contract
Select one:
a. I, II, III and IV
b. I and II only
c. I and III only
d. I, II and IV
Joe does not have a specialist pension transfer qualification. He cannot give advice on transferring any pension with any guaranteed element, so the defined benefit and added years AVCs. The other two transfers do not involve any guarantees so, in theory, he could advise on them (but would probably need an internal provider exam to do so).
The correct answer is: I and III only
Gary is a trainee IFA under supervision. Which of the following need Gary not include within a suitability report?
Select one:
a.
The client’s needs and shortfalls
b.
The use of clear and plain language
c.
Lists of the products considered but discounted
d.
Full details of all client objectives not included in the advice process
A suitability report does not have to include details about all the client objectives where advice has not been given. All the other options must have been covered.
The correct answer is: Full details of all client objectives not included in the advice process
J ake has recently received advice and, as a result, taken out a WOL policy and cash ISA, and made both a pension and ISA transfer. Which of these have a 14-day statutory cooling off period?
Select one:
a.
Cash ISA and WOL policy
b.
Cash ISA and ISA transfer
c.
Pension and ISA transfer
d.
ISA transfer and WOL policy
Remember that products viewed as ‘simpler’ will have shorter cancellation periods. The regulator does not view pensions or life policies as simple. The cash ISA and ISA transfer will both have a 14-day cancellation period
The correct answer is: Cash ISA and ISA transfer
Sally has died intestate leaving an estate of £850,000, her wife Helen and son Chris. Who will receive what under the laws of intestacy?
Select one:
a.
Helen will inherit the entire £850,000 estate
b.
Helen will inherit the first £586,000, Chris the remaining £264,000
c.
Chris will inherit the first £586,000, Helen the remaining £264,000
d.
Chris will inherit the entire £850,000 estate
When Sally dies, she leaves an estate of £850,000, and both a spouse (Helen) and issue (Chris). Helen will inherit the first £322,000 plus 50% of the residue (£264,000) = £560,000. Chris will then inherit the other 50%, so £264,000.
The correct answer is: Helen will inherit the first £586,000, Chris the remaining £264,000
Joe, a self-employed decorator, has been made bankrupt three months ago. When can he look forward to the end of his bankruptcy period?
Select one:
a.
After one year
b.
After three years
c.
After four years
d.
After seven years
Joe‘s period of bankruptcy is likely to last for one year unless he is deemed to be a culpable bankrupt.
The correct answer is: After one year
Robert, age 40, wishes to build up a cash lump sum to purchase a canal barge in 14 years’ time when he retires. Which of the following products would be most appropriate for this purpose?
Select one:
a.
Stocks and shares ISA
b.
Purchased life annuity
c.
Small self-administered scheme
d.
Stakeholder pension
Robert wants to build up a cash lump sum. A purchased life annuity would provide an income and both the SSAS and stakeholder pension could not currently be taken at age 54 but 55 at the earliest. So, the ISA is his best bet.
The correct answer is: Stocks and shares ISA
Two clients of yours both have trusts. One has an absolute trust the other a discretionary trust. Which of the following statements is true?
Select one:
a.
The beneficiaries are known for the discretionary trust
b.
You client is sure who will benefit from the discretionary trust
c.
The beneficiaries are unknown for the absolute trust
d.
You client is sure who will benefit from the absolute trust
With an absolute trust, the settlor will be sure who the beneficiaries are. They have an absolute right to the trust assets once they attain capacity at age 18.
The correct answer is: You client is sure who will benefit from the absolute trust
Jessica wishes to transfer a portfolio of £400,000 shares she owns to her daughter Samantha. She has asked you, as her financial adviser, to comment on how this transfer will be treated from an IHT perspective. You say that…
Select one:
a.
the transfer will be exempt as it is to her daughter
b.
the transfer will be chargeable as it is above Jessica’s nil rate band
c.
the transfer will be potentially chargeable depending on Jessica’s life expectancy
d.
the transfer will be tax-free as it is within Jessica’s nil rate band
Jessica’s share transfer will be classed as potentially exempt as it is a gift. This means that Jessica must survive for seven years post-gift to avoid any inheritance tax liability.
The correct answer is: the transfer will be potentially chargeable depending on Jessica’s life expectancy
John and Ann are friends who purchased a property as tenants in common. Both have a mortgage of £50,000 with no life cover in place. On John’s death, what happens to his mortgage share?
Select one:
a.
It is a debt on Ann
b.
It is a debt on the executors of John’s estate
c.
The property will have to be sold
d.
The property will have to be repossessed
When John dies, his mortgage debt will pass into his estate, as the property has been purchased on a tenant in common basis. It will be dealt with by his executors.
The correct answer is: It is a debt on the executors of John’s estate
Jason is a higher rate tax-payer. You are his financial adviser. You are deciding whether to recommend equities and/or deposit- based schemes. Which of the following is likely to be the MOST important factor to discuss with Jason?
Select one:
a.
Ensuring he understands what equity- based investments are
b.
Establishing a budget with Jason so that he can afford any investments
c.
Establishing his attitude to investment risk and capacity for loss
d.
Ensuring you understand his goals and objectives
All the factors mentioned are important for Jason to consider. If he is considering equity-based investment, then his attitude to risk and capacity for loss are extremely key factors.
The correct answer is: Establishing his attitude to investment risk and capacity for loss
Mo is an independent financial adviser, but not qualified as a pension transfer specialist or in equity release. He has been asked to give advice on the following cases:
- DB pension to a personal pension.
- £300,000 lifetime mortgage.
- Personal pension to a self-invested personal pension.
- FSAVC to a personal pension.
Which of the above would Mo be able to advise on?
Mo is not licensed as a pension transfer specialist or equity release. A lifetime mortgage is a form of equity release, so he is unable to give advice here. As he is not a pension transfer specialist, he cannot give advice on DB transfers. He could advise on DC transfers. The two areas he can advise on therefore are the DC transfers, so options 3 and 4 only.
The correct answer is: 3 and 4 only
Freddie has carried out some share transactions using best-execution principles. He will receive which of the following cancellation periods?
Select one:
a.
Seven days
b.
14 days
c.
30 days
d.
None as this is classed as execution-only business
will be given, as these are classed as investment transactions.
The correct answer is: 14 days
Sam has found some ex-adviser training records in her life company’s basement dated Jan 2015. What is the MAIN factor that will determine whether she can destroy the files?
Select one:
a.
The adviser’s leaving date
b.
The training material subject
c.
The adviser’s age
d.
The adviser’s employment status at the time
The period that training records are kept for starts from the date the individual leaves their firm, whether employed or self-employed.
The correct answer is: The adviser’s leaving date
A client has a £30,000 deposit put aside for house purchase in one year’s time. What is the main reason that they might they choose a deposit scheme over an equity investment?
Select one:
a.
Capital would remain secure
b.
It is easier to understand and track
c.
Interest would be paid tax-free
d.
Growth is not possible in equities short-term
If the investment is short-term, then deposits are usually the best investment type. Interest is taxable and growth is possible from equities whatever the term.
The correct answer is: Capital would remain secure
An adviser has noticed that a client has paid £1,200 into each of two separate cash ISAs each month for the last three years. Which of the following actions should the adviser take?
Select one:
a.
Do nothing
b.
Escalate the issue to their supervisor
c.
Inform HMRC that the client has been making overpayments
d.
Advise the client to contact HMRC to discuss overpayments
This is an issue between the client and HMRC.
The correct answer is: Advise the client to contact HMRC to discuss overpayments
A firm has been fined for submitting their Retail Mediation Activities Report (RMAR) late. How often must this form be submitted to the regulator?
Select one:
a.
Monthly
b.
Quarterly
c.
Every six months
d.
At least annually
A RMAR must be submitted to the regulator every six months
The correct answer is: Every six months
Suitability is key when recommending a solution to a client. Which of the following would NOT need to be considered?
Select one:
a.
Future tax changes
b.
Client’s tax status
c.
Term of the product recommended
d.
Any client ethical preferences
An adviser cannot take into account future tax changes in financial planning advice as they have no idea what these changes are likely to be.
The correct answer is: Future tax changes
Which of the following statements best describes an EU directive?
Select one:
a.
Takes effect immediately and does not need to be ratified
b.
Not legally binding with no need for ratification
c.
Must be approved by an EU referendum
d.
Binding on member states with the method of ratification left open
An EU directive is binding on member states, but leaves the method of ratification up to them individually. So, there is a ‘run-in’ period for directives. As the UK is no longer a member of the EU it is no longer subject to future EU directives.
The correct answer is: Binding on member states with the method of ratification left open
Which of these authorised firms were exempt from MiFID requirements?
Select one:
a.
UK based IFA arranging investments, that does not hold client monies
b.
UK based IFA arranging investments in unregulated collective investment schemes
c.
UK based IFA advising clients in other EEA states
d.
UK based IFA arranging investments in unregulated securities
A UK firm that does not hold client monies was exempt from MiFID requirements
The correct answer is: UK based IFA arranging investments, that does not hold client monies
Alex is a sole-trader with-profits of £20,000. Which of the following taxes is he subject to?
Select one:
a.
Income tax paid annually via self-assessment and flat-rate National Insurance contributions
b.
Income tax paid annually via self-assessment and National Insurance contributions paid on a percentage of profits
c.
Income tax paid bi-annually to HMRC and flat-rate National Insurance contributions
d.
Income tax paid bi-annually to HMRC and both flat-rate and profit-based National Insurance contributions
Income tax paid bi-annually to HMRC and both flat-rate and profit-based National Insurance contributions
The correct answer is: Income tax paid bi-annually to HMRC and both flat-rate and profit-based National Insurance contributions
The Competition and Markets Authority (CMA) constantly reviews the impact FCA rules and practices have on market competition. The CMA work closely with which of the following bodies?
Select one:
a.
HM Treasury and the FCA only
b.
HM Treasury, the FCA and PRA
c.
The Bank of England, the FCA and PRA
d.
The Bank of England, the PRA and Treasury
The CMA works closely with both HM Treasury and the FCA.
The correct answer is: HM Treasury and the FCA only
Under the Consumer Credit Act, businesses that offer goods on credit, lend money, or are involved in activities relating to credit or hire must be licensed. Which body is currently responsible for authorisation in this area?
Select one:
a.
Financial Conduct Authority
b.
Prudential Regulation Authority
c.
Competition and Markets Authority
d.
Office of Fair Trading
Since 1st April 2014 the FCA is now responsible for authorising businesses that offer goods or lend money under the Consumer Credit Act.
The correct answer is: Financial Conduct Authority
A client of yours requires a regular monthly income with minimum risk involved. Which of the following should you recommend?
Select one:
a.
Personal pension plan
b.
Medium term GILTS
c.
Equity based unit trusts
d.
NS&I Income Bond
Only one of the four product options pays monthly income, this is the NS&I income bond.
The correct answer is: NS&I Income Bond
Joan is 82 and wants to establish a Lasting Power of Attorney (LPA). She wishes her family to be able to take care of her finances plus make decisions in relation to her health should she be admitted to hospital. In terms of the two elements of an LPA, property and financial and health and welfare Joan should?
Select one:
a.
Use neither and just do a simple power
b.
Set up both as that is the most comprehensive
c.
Set up the personal health and welfare element
d.
Set up the property and financial element
Both elements will be required to achieved Joan’s desired outcomes
The correct answer is: Set up both as that is the most comprehensive
jo is a newly un-discharged bankrupt. Which of the following statement is the BEST description of her current situation?
Select one:
a.
She must owe at least £2,500 and has six months of bankruptcy to go
b.
She must owe less than £2,500 and has six months of bankruptcy to go
c.
She must owe at least £5,000 and has 12 months of bankruptcy to go
d.
She must owe less than £5,000 and has 12 months of bankruptcy to go
Jo is a newly un-discharged bankrupt. She must owe at least £5,000 to her creditors, and she will be bankrupt for a standard twelve-month period unless she is deemed culpable
The correct answer is: She must owe at least £5,000 and has 12 months of bankruptcy to go
joe is no longer personally liable for the debts of his business. This is most likely to be because…
Select one:
a.
Joe has retired
b.
The business has incorporated
c.
Joe has been declared bankrupt
d.
Joe has lost mental capacity
With a limited company (incorporation) the company is liable for any debts to the extent of its assets and not the individual themselves.
The correct answer is: The business has incorporated
The FOS has awarded £50,000 compensation, £30,000 for loss of reputation and £10,000 as a general award to a claimant. The costs of both the claimant and respondent were £5,000 each. The total payment the respondent will need to make will be…
Select one:
a.
£35,000
b.
£85,000
c.
£95,000
d.
£100,000
The FOS can award all the compensation listed, except the respondent’s costs.
The correct answer is: £95,000
NOTE (‘COMPENSATION’ is its own distinct reward)
Which of the following institutions is MOST likely to offer portfolio management services?
Select one:
a.
Building societies
b.
Friendly societies
c.
Banks
d.
Mutual societies
Building, friendly and mutual societies/organisations are all variations of the same thing; they exist for the benefit of their members and tend to offer a narrower range of products and services. Banks, on the other hand, have shareholders, and offer a wider range of services, including portfolio management.
The correct answer is: Banks
