Unit 2 Topic 19&20

Question 1

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

Answer 1

B between 9am and 9pm Monday to Saturday

Question 2

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

Answer 2

A The advert must be authorised by the FCA

Question 3

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

Answer 3

D Indefinitely

Question 4

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.

Answer 4

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

Question 5

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

Answer 5

D does not meet the requirements to be independent

Question 6

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

Answer 6

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

Question 7

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

Answer 7

A The client agreement

Question 8

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

Answer 8

C is not necessarily a guide to future performance

Question 9

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

Answer 9

A personal pension plan

Question 10

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

Answer 10

C no recommendation will be required

Question 11

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

Answer 11

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

Question 12

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.

Answer 12

D a comprehensive and fair analysis of the relevant market.

Question 13

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

Answer 13

D No later than 14 days after the contract is concluded

Question 14

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

Answer 14

D customer

Question 15

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

Answer 15

D Reduction in market value

Question 16

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

Answer 16

B Five years

Question 17

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.

Answer 17

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

Question 18

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

Answer 18

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

Question 19

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

Answer 19

A John and Jenny who are looking for a repayment mortgage

Question 20

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

Answer 20

A Product recommendations

Question 21

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

Answer 21

C the contract begins

Question 22

How long should most customer records be kept in relation to pension contracts?
A 3 years 
B 5 years
C 10 years 
D Indefinitely

Answer 22

B 5 years

Question 23

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

Answer 23

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

Question 24

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

Answer 24

D gilt edged securities

Question 25

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

Answer 25

C 5 years

Question 26

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

Answer 26

A Cold calling

Question 27

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%

Answer 27

C If they do not handle client money

Question 28

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

Answer 28

D Operational risk

Question 29

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

Answer 29

D solvency ratio

Question 30

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

Answer 30

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