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CeMAP 1 > Topic 19&20 > Flashcards

Topic 19&20 Flashcards

1
Q

Justin, a financial adviser, hopes to extend his client bank by making unsolicited telephone calls to a list of people he has taken from the telephone directory. As he is aware of the FCA rules, he will only be making contact:

A. between 9am and 8pm Monday to Friday

B. between 9am and 9pm Monday to Saturday

C. between 9am and 9pm Monday to Friday

D. between 9am and 8pm Monday to Saturday

A

B. between 9am and 9pm Monday to Saturday

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2
Q

Which of the following criteria is NOT one that must be satisfied by an advertisement in order to comply with the FCA’s guidelines on advertising?

A. The advert must be authorised by the FCA

B. It must be tailored to the likely sophistication of the reader

C. It must be clear, fair and not misleading

D. It must make reference to any potential risks involved

A

A. The advert must be authorised by the FCA

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3
Q

What is the minimum period for which customer records, in respect of pension transfer and opt out contracts must be kept?

A. Three years
B. Six years
C. Ten years
D. Indefinitely

A

D. Indefinitely

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4
Q

A key function of a client agreement is to set out:

A. the individual contracts that the adviser is licensed to sell

B. the areas from where a potential client can obtain advice.

C. the rights and obligations of the firm and client and to disclose charges.

D. the Financial Services and Markets Act.

A

C. the rights and obligations of the firm and client and to disclose charges.

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5
Q

A restricted adviser is one who:

A. can only make recommendations based on the products of a single provider

B. has not passed all the exams to enable them to give independent advice

C. can only give basic advice on stakeholder products

D. does not meet the requirements to be independent

A

D. does not meet the requirements to be independent

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6
Q

Under the ‘know your customer’ requirements, advisers should:

A. assume that a private individual fully understands the risks involved

B. explain the potential product risks to an execution only client

C. provide the highest level of advice and duty of care to clients categorised as retail customers

D. offer exactly the same duty of care and advice to all customers

A

C. provide the highest level of advice and duty of care to clients categorised as retail customers

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7
Q

When an adviser transacts designated investment business for a client, the basis or amount of the charges would normally be disclosed in which document?

A. The client agreement
B. The key features document
C. The statutory cancellation notice
D. The suitability letter

A

A. The client agreement

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8
Q

Which compliance health warning MUST appear on all advertising material containing details of past investment performance? Past performance:

A. is only a general guide to the future

B. of five years or more is a reasonable guide to the future

C. is not necessarily a guide to future performance

D. is not necessarily better than future performance

A

C. is not necessarily a guide to future performance

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9
Q

From 2018, a Key Information Document (KID) will be required for all these products except:

A. personal pension plan
B. a unit trust
C. an OEIC
D. a unit linked endowment

A

A. personal pension plan

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10
Q

If a client intends to purchase an investment product from an adviser on an execution only basis, then:

A. no charges will be payable
B. this is only possible with high net worth clients
C. no recommendation will be required
D. this is only possible with professional clients

A

C. no recommendation will be required

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11
Q

In terms of knowing your customer, what is an eligible counterparty?

A. Where a firm acts on behalf of a private customer
B. A private customer
C. Where a customer is in a controlled function in financial services
D. A corporate customer

A

C. Where a customer is in a controlled function in financial services

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12
Q

To meet the FCA definition of independent advice, recommendations must be based on:

A. a complete analysis of the relevant market.

B. a comprehensive and inclusive analysis of the relevant market.

C. a thorough and fair analysis of the whole market.

D. a comprehensive and fair analysis of the relevant market.

A

D. a comprehensive and fair analysis of the relevant market.

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13
Q

What is the latest date, if any, that the suitability letter can be sent to a customer who is considering investing in a personal pension plan?

A. Before the contract is concluded
B. Five days after the final interview
C. Five days after the end of the cooling-off period
D. No later than 14 days after the contract is concluded

A

D. No later than 14 days after the contract is concluded

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14
Q

When carrying out a sale on an ‘execution-only’ basis, the responsibility for the transaction rests with the:

A. adviser
B. regulator
C. product provider
D. customer

A

D. customer

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15
Q

Henry invested £1,000 in a unit linked lump sum product and cancelled seven days later and received back £950. What did this reduction most likely represent?

A. Handling charge
B. Adviser’s fee
C. Cancellation charge
D. Reduction in market value

A

D. Reduction in market value

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16
Q

Fact Find information for firms covered by MiFID must be kept for how long?

A. Indefinitely
B. Five years
C. Three years
D. Ten years

A

B. Five years

17
Q

A professional customer is best described as:

A. a regulated collective investment scheme.

B. a firm dealing on behalf of a private customer with some knowledge of the industry.

C. an inexperienced private investor.

D. a firm or institution dealing on its own account.

A

B. a firm dealing on behalf of a private customer with some knowledge of the industry.

18
Q

What does an execution only transaction require an adviser to do?

A. To provide advice that will inform the customer’s choice

B. To make a range of recommendations for the customer.

C. To ensure that the client signs to confirm it is an execution only transaction

D. To effect the transaction on behalf of a market counterparty

A

C. To ensure that the client signs to confirm it is an execution only transaction

19
Q

For which of these customers is a specific client agreement least likely to be given to a client?

A. John and Jenny who are looking for a repayment mortgage

B. Bob who is looking to invest in equities

C. Paula who is considering the derivatives market

D. Simon who is interested in the futures market

A

A. John and Jenny who are looking for a repayment mortgage

20
Q

Which of the following will not be included in an initial disclosure document?

A. Product recommendations

B. Complaints procedure

C. Name of the regulator

D. Services offered

A

A. Product recommendations

21
Q

The ‘cooling-off’ period usually starts from the date:

A. the application form was signed

B. the policy document was issued

C. the contract begins

D. the acceptance terms were issued

A

C. the contract begins

22
Q

How long should most customer records be kept in relation to pension contracts?

A. 3 years
B. 5 years
C. 10 years
D. Indefinitely

A

B. 5 years

23
Q

A £12,000 unit linked single premium investment bond is cancelled by a customer within the cooling-off period. However, during this period, the stock market fell sharply. Consequently, so did the value of the bond. What is the customer likely to receive?

A. £12,000 less a market adjustment, if specified in the contract

B. £12,000 less a market adjustment, whether or not specified in the contract

C. 95% of the surrender value of the investment bond

D. The paid up value of the investment bond

A

A. £12,000 less a market adjustment, if specified in the contract

24
Q

An adviser must issue a key features document or key information document prior to a sale being concluded, for all of the following products except:

A. life assurance
B. stakeholder pensions
C. unit trusts
D. gilt edged securities

A

D. gilt edged securities

25
Q

Haddon Bank are about to begin an advertising campaign to promote fresh interest in their UK Equity Fund, which was launched ten years ago. Since they intend to show recent performance of the fund, what is the MINIMUM period over which performance figures must be shown?

A. 10 years
B. 7 years
C. 5 years
D. 1 year

A

C. 5 years

26
Q

Mortgage Advice Ltd has found that their primary method of obtaining new business is NOT permitted under Financial Conduct Authority regulation. This means that they must have been using which of the following methods?

A. Cold calling
B. TV advertising
C. Mortgage introducers
D. Radio advertising

A

A. Cold calling

27
Q

In order to satisfy the Capital Requirements Directive, certain investment firms must have minimum capital of at least €125,000. Under what circumstances are these firms allowed to reduce this to €50,000?

A. If they only buy and sell assets to fulfil customer orders

B. If they buy and sell assets with the intention of selling them to their customers

C. If they do not handle client money

D. If their solvency ratio exceeds 4%

A

C. If they do not handle client money

28
Q

Which of the following risks would be defined as that arising from the way that a business is run and managed?

A. Capital adequacy risk
B. Internal risk
C. Liquidity risk
D. Operational risk

A

D. Operational risk

29
Q

A bank’s capital as a proportion of its risk weighted assets is referred to as the:

A. capital adequacy margin
B. liquidity ratio
C. prudential standard
D. solvency ratio

A

D. solvency ratio

30
Q

Liquidity is a measure of:

A. the excess of a business’s assets over its liabilities

B. an insurance company’s potential exposure to claims

C. the ease and speed with which a business’s assets can be converted into cash

D. the level of savings in notice accounts

A

C. the ease and speed with which a business’s assets can be converted into cash

CeMAP 1 (25 decks)

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