Exams

CII AF5

CII AF5 Feb 2024 – is this the mystery question?

The CII AF5 exam always throws up a question that no one sees coming. It’s usually on a topic that is not highlighted with any great significance in the case study and is designed to really allow candidates that are really well prepared and experienced to stand out.

This ‘mystery question’ is hard to prepare for and it’s worth saying that at this point, everything else in this article is guess work to an extent. But something stood out for me whilst analysing the upcoming February sitting of the CII AF5 exam. It was the last sentence on page 4 of the case study.

“Neil and Helen do not intend to pay university tuition fees for their children but will provide limited financial support”.

Now there is nothing particularly surprising about that sentence. Well, at least not until you consider the case study as a whole.

Neil and Helen are in a very strong financial position. They have a large amount of liquid assets, they have surplus income each year and have also indicated a willingness to downsize in the future. On top of this, they do not intend to retire for another ten years, and they have paid for private school fees for Samuel and Anna previously.

So it did stand out that we are told they do not intend to pay university tuition fees. I could be barking up the wrong tree, but if I were studying for the upcoming AF5 exam, I’d just familiarise myself with the student loan structure, just in case Neil and Helen do have a change of heart!

The student loan structure did also change from September 2023, which has flown under the radar of most in the financial planning profession (in my experience!).

But what changed? In September 2023, the student loan changed from Plan Two to Plan Five. The impact? Students taking a student loan after September 2023 will face higher levels of annual repayment and also the percentage of students likely to clear the full loan increased from an estimated 23% (for students on Plan Two) to 52% (for students on Plan Five).

What should I familiar myself for the exam?

Again, I wouldn’t spend too much time on this. This sitting of the CII AF5 exam does seem to be one of the more complex case studies and it’s unlikely that ‘the mystery question’ will lead you to passing or failing this exam. However, in my opinion, just familiarising yourself with the student loan is worth the effort, in the off chance that it is tested.

There are three main areas I’d try to remember; when students are required to begin repaying a loan, the term of the loan and the level of interest added.

  1. Threshold – On Plan 2, graduates were required to repay 9% on any income received over the threshold of £27,295. For the new Plan 5 (that came in from September 2023), graduates of this plan are required to repay 9% on any income received over a threshold of £25,000.
  2. Maximum Term – Plan 2 had a maximum loan term of 30 years. However, for Plan 5 this has been increased to 40 years.
  3. Interest Added – Interest up to RPI + 3% was added to the Plan 2 loan, with this changing to just RPI for Plan 5.

 

What’s the impact of these changes?

The changes above may seem fairly small, a slight lowering of the threshold and increase to the maximum term, but the impact is huge. On average for graduates on Plan 2, the state expects to pay 44p for every £1 borrowed. This is because given the maximum term, the majority of graduates would never fully repay their loans, with only 23% of graduates on the Plan 2 loan expected to fully clear their outstanding balance. In contrast, the state expects to only pay 19p for every £1 borrowed for graduates on the Plan 5 loan, with 52% of graduates expected to fully repay their loan within the extended 40 year term.

And it’s for this reason that I’d familiarise myself with the student loan ahead of the CII AF5 sitting, just in case! For more information, please read the article I wrote last year ahead of the changes.

I hope this article has been helpful, and best of luck with the exam!

Sam Patterson

R06 July 2023

The R06 Exam – Learn the questions!

The next R06 exam is quickly approaching and it’s vital that you make the best use of your time ahead of the exam. Afterall, the exam is a test of knowledge so you need to ensure you have as much as that as possible!

However, if you do not answer the question the examiners have set, the exam will likely not go so well! Now this seems obvious but in our 29-years experience in training candidates through exams, not properly understanding the question asked if one of the major reasons why candidates fail the R06 exam. So we wanted to bring you a blog to share with you the types of question that will be asked in the R06 exam, and how to answer them!

Types of questions

So I’m sure that you will be familiar with the expression ‘past performance is not a guide to future performance’ and this applies to exams as much as it does with investment advice. There are likely to be questions in some areas of the case studies that will surprise you and it’s also likely there will be questions which are less of a surprise. Looking back at past exams will show you that there are questions that feature in just about every RO6 exam. Below are the six question types that you need to understand and master:

Risk-based questions

This type of question is primarily used in AF5 but it may also be used in RO6 (although it’s not been regularly used in this exam). An example of a risk-based question is as follows:

‘Sanjay would like to know more about the risks associated with investments. Excluding market risk, identify the relevant investment risks and describe how they apply to the following:

(a) Cash held within the bank (8 marks)

(b) The proposed purchase of a holiday home in Spain (10 marks)’

From an exam technique point of view, it is important with R06 to spot the verbs used in the question. So take the above example, the verbs are identify and describe, which means when answering the 10 mark question relating to the holiday home, you would have received 5 marks for identifying the five types of risk outlined above and a further five marks for describing how these apply to Sanjay. Ideally, you would also include at least one extra risk factor with a suitable description to maximise your chances of getting full marks. History has shown that the number of marks for this type of question does vary but you could expect around 10 marks of this style in a typical exam.

Fact-find questions

As the name suggests, this style of question requires you to identify the additional information that you would require, prior to advising a client, beyond that provided in the R06 case studies. Like the risk-based question, this is a favourite type of question with examiners and therefore you should ensure you are comfortable answering these.

Depending on the exam, the focus of this question will be either the client’s objectives (e.g. Immediate financial objectives) or an element of the client’s financial planning needs (e.g. retirement planning). Remember, that asking for information that has already been provided in the fact-find shall not score well, as it shows the candidate is lacking the ability to correctly apply answers to the information provided.

An example of a fact-find question is as follows:

‘Identify the additional information you would need to discuss with Mike in order to advise on how to meet his:

(a) Immediate financial objectives (14 marks)

(b) Longer-term financial objectives (14 marks)’

Comment on questions

This is the fourth style of question that we will look at and this perhaps needs a little more explanation than the previous three question types. It is important to understand what the examiners are looking for with this style of question. In effect, it means ‘describe the position’. It doesn’t ask you to elicit additional information and it doesn’t ask you to make recommendations. Instead, it’s a question asking you to basically outline the information that is available to you. Hopefully the below example will help to demonstrate this:

‘Fiona is particularly concerned about the impact long-term illness or death will have on the family’s situation.

(a) Comment on the current situation and identify any weaknesses in Fiona’s protection arrangements if she suffered a long-term illness or disability. (8 marks)

(b) Comment on the current situation and identify any weaknesses in Fiona’s financial arrangements if she died tomorrow. (8 marks)’

Review questions

This style of question traditionally requires you to either:

  • Identify the key events that would trigger a review of a client’s circumstances.
  • Identify the actions you would need to take when reviewing a specific area of advice provided to clients e.g. review protection needs, ongoing suitability of investments, income in retirement.

Below is an example of a review question:

‘When conducting an annual review, list eight areas that you would specifically address with John. (8 marks)’

Explain, outline or describe questions

These may be used as a verb in one of the other questions, e.g. ‘explain the risks of…’. In this case, being aware that you are being asked to identify the risks of something is the important bit. On other occasions, it is the ‘explain’, ‘outline’ or ‘describe’ that is important. This type of question requires you to demonstrate the depth of your knowledge.

With this type of question, the examiners are asking you to provide detail. If you are not precise or you do not link the information to the scenario given, you will not score well. For example, if you are asked about taking income from an investment bond, you would probably get marks for saying something like:

  • 5% withdrawal may be taken (1 mark)
  • based on the amount invested (1 mark)
  • tax deferred (1 mark)
  • for a period of up to 20 years (1 mark)

Here is an example of a risk-based question:

‘Explain to Doris the ‘small pots’ rules that allow her to take her preserved personal pension policies immediately and the tax implications of this course of action. (8 marks)’

Recommendation questions

Given the RO6 exam concentrates on financial planning, it really shouldn’t come as a huge surprise that recommendation questions feature in nearly every R06 exam. Below is an example of a recommendation question:

‘Detail and justify the recommendations you would make in respect of each of the following financial objectives. No calculations are required. Candidates will be rewarded for supporting their recommendations with relevant evidence and demonstrating how the recommendations work holistically to meet the client’s objectives.

(a) To provide financial security for herself and her children in the event of illness.(10 marks)

(b) To provide financial security for her children in the event of her death. (8 marks)’

From an exam technique point of view, again notice the verbs that are used in the question. Take the example question for instance- detail and justify. Part (a) of the question will probably look for five recommendations that meet the client’s needs, with a further five marks justifying these.                                          

I hope you have found a breakdown of the different types of questions examiners may use helpful! There’s still time to listen to our audio material to hear how these objectives – including ESG – have been tested in previous R06 exams. We also have TWO FREE podcasts that are available for the R06 exam.                                       

Best of luck with the exam!

Sam Patterson

R06 July 2023

CII AF exam dates 2024

Here are the CII AF exam dates for 2024 which are include two sittings. 

Sitting One (February to March)

AF1: 20th February

AF5: 13th February

AF7: 5th March

AF4: 7th March

Sitting Two (September to October)

AF1: 10th September

AF5: 17th September

AF7: 24th September

AF4: 1st October

Written exams vs coursework?

Of course, the CII now offer AF6 and AF8 on a coursework basis. This means that you have to submit assignments and there isn’t a specified exam date. But you do need to complete all three assignments within a 12 month period so if you intend to sit one of these subjects and a written AF exam, schedule the writing of your assignments to avoid the times when you will need to study for the AF written exam.

Enrolment for the assignment-based exams – AF6 and AF8 – can be at any time.  Note that the 12 month clock starts ticking when you enrol, not when you submit your first assignment.

Which is the easiest CII AF exam?

In theory, this might be a sensible way to select an exam. In practice, it might not quite workout this way. We always suggest selecting an exam that is of most use to your work and to your business. If you work in a specialist area, then your day-job may help to give you a head start in a subject where others struggle.

Here are the latest CII pass rates for the AF exams at the time of writing (July 2023):

AF142% (-1% on the previous year)

AF457% (+7% on the previous year)

AF572% (+9% on the previous year)

AF697% (no change)

AF761% (+5% on the previous year)

AF875.3% (no change)

NB The pass rate for assignment-based exams such as AF6 and AF8 suggest that these exams are easier than they are. This is because the pass rates are only based on those that submit and successfully complete all of their assignments – and do not include people who ‘drop out’.

Click here for the figures for previous years and to see the trends.

Want to know more?

CII website – AF exams

Free AF exam preparation guide (for AF1, 2, 4, 5 or 7). Click here

For details of all written financial services exams (e.g. J07, J05), click here

Prepare well and be successful.

Sam Patterson


paraplanners career qualifications

Paraplanners: Career & Qualifications

I have been around paraplanners all of my career. I began my career working in a paraplanner role, then managing teams of paraplanners and now through my roles as a consultant with The Patterson Group and Head of Mentoring at The Paraplanner Club. I also interact with financial planners and business owners from all around the country, Whomever I speak with, it’s very common for exams and qualifications to come up in conversation, particularly when speaking with paraplanners.

What exams and qualifications should I do next? How should I revise for exams? How important are qualifications and exams for a paraplanner’s career development?

And it’s the last question that is often hardest to answer, because I think qualifications are important for paraplanner’s career development, but not for the reason that you might think.

First things first, I don’t believe qualifications automatically mean competency or lead to a promotion. But, I can hear you say, ‘qualifications mean you will improve your technical knowledge right?’ Yes, to an extent. In my experience, whilst there is no doubting exams do help individuals to learn technical knowledge, unless a paraplanner continues with regular CPD or works in and around that technical area, this knowledge can disappear over time, especially as regulations change.

So then, if it’s not for technical knowledge, why do I think that qualifications can help with a paraplanner’s career development? I believe that qualifications help to bring a level of credibility. Can you gain credibility through other means? Absolutely! But having a qualification, whether level four or level six, can be seen as a badge of honour that demonstrates you have dedicated hundreds, if not thousands, of hours (normally out of working hours) to improving your knowledge and investing into yourself. It’s that demonstration of dedication that can help with paraplanner’s career development, instead of just having a qualification to your name.

I did a poll on Linkedin to gather the thoughts of others on this matter. Do you believe exams are important for a paraplanner’s career development and if so, up to what level? Of the 176 votes, 45% said ‘yes until level 6/Chartered’, 49% said ‘yes until level 4/Diploma’ and 6% said ‘little/no importance’.

The results of the poll weren’t too surprising and I was inundated with messages that supported these results. But what did stand out to me was of the 6% who voted little/no importance (10 votes), four had achieved Chartered or Fellow qualifications. A further three had achieved Diploma qualifications. It would seem that I’m not alone in thinking that qualifications alone don’t automatically equate to career development, even if they can help demonstrate a dedication to personal development.

If you’re a paraplanner reading this, you may be thinking, if qualifications alone aren’t the answer to career development – what is? Here are three other tips for you that can help with a paraplanner’s career development:

 

1 – Where would you like to develop?

My first tip in terms of helping with a paraplanner’s career development is asking one simple question: where would you like to develop? This could be in relation to your profession job role, or a personal goal!

I’ve always found that when you specify your destination, it’s easier to identify the steps to get there and you begin to dedicate time and energy in the right places. So, first step is specify your destination. This is where communities such as The Paraplanner Club and NextGen Planners can come in hugely helpful, as you can draw on the experiences of others to help plot your career!

 

2 – What ‘image’ would you like to project?

A second tip for career development is your image. Now this isn’t physical appearance. What I mean by ‘image’ is the thought that people think when they hear your name. Are you known for being a hard worker? Do people see you as someone that can spin multiple plates at once? Are you seen as the go-to person for a particular area?

Concentrating and working on your ‘image’ can help you gain the recognition that you deserve from those around you, and in my experience can help hugely with a paraplanner’s career development.

 

3 – What is your niche?

And my final tip relates to what your niche is. This is one of the quickest ways that you can improve the ‘image’ you project. If you dedicate time and energy into developing a specialist area, you will quickly find that you become the go-to person within a firm for a certain thing. You will find other paraplanners, financial planners and even directors will come to you for your perspective on this area, which will help gain exposure to those that can unlock different career opportunities for you.

Your niche area could be a technical area, such a trusts or pensions, or it could be in relation to the servicing of vulnerable clients or the implementation of the Consumer Duty. It’s not really for anyone else to tell you what your ‘niche’ could be, but it’s something for you to consider.

 

As always, my inbox on LinkedIn is always open. Alternatively, should you wish for ongoing support and guidance, why not sign up for The Paraplanner Club?

Need some more information?

AF6

CII AF6 changes for 2023/24

The CII AF6 exam has undergone a bit of a revamp. The syllabus has changed and so has the study text. This means that an existing exam will feel very different to anyone who sits it from 1st September 2023. Here is an overview to the changes.

The previous AF6 exam was launched back in 2013. It was the first ‘coursework’ AF exam and was a bit of a trail blazer as it was also the first AF exam to have a study text. As time has gone by, the syllabus and the study text (which based upon this) had changed very little until both were updated from September 2023.

The CII’s AF6 exam is intended for those who are, or aspire to be, a senior manager within their business and also those who wish to gain a greater insight into running a regulated business. With initiatives like SM&CR and Consumer Duty, it is clear that the FCA is increasingly placing emphasis on the quality of management within authorised firms and AF6 reflects this.

Syllabus changes to the CII’s AF6 exam

There are two main changes:

    • The syllabus for the CII’s AF6 exam now starts with a section on the regulatory environment. This previously covered the elements of FCA rules that impact on the role or responsibilities of senior managers. It now looks in more depth at areas such as equality and diversity, data protection, and financial crime: fraud, anti-money laundering and economic crime. The syllabus for the CII’s AF6 exam can be found here.

    • As you would expect, there is also now widespread coverage of Consumer Duty and vulnerable clients. Both of these far-reaching initiatives place responsibility on senior managers on a surprisingly wide range of areas. The result is that senior managers will need to work in ways we haven’t seen before. For example, what does appropriate monitoring and governance look like? Client vulnerability must be considered in every aspect of engaging with clients and the types and severity of vulnerability needs to be understood. What are the senior manager responsibilities for achieving this?

The first of the four learning outcomes is now the ‘business and regulatory environment’. The remaining three learning outcomes are ‘risk management’, ‘senior manager competence/ general competence arrangements’ and ‘culture’. Whilst the themes are broadly similar to the previous three AF6 learning outcomes, the content looks very different in many ways.

How will the CII AF6 exam change?

Time will tell but the way AF6 is examined is likely to change quite markedly. Including regulations explicitly within the exam is likely to result in this being tested more widely. It wouldn’t be a huge surprise if Consumer Duty, SM&CR and Vulnerability feature prominently in assignments going forward.

The ‘balance’ of the exam is also likely to shift. Previously, assignment 1 would be based on Chapters 2, 3 and 4 (chapter 1 was intended to just provide background knowledge), assignment 2 was based on chapter 5, and assignment 3 on chapter 6. Only the examiners’ will know for sure, but it’s probably a fair bet that AF6 will become less predictable – if only because there are now 6 chapters to test compared to the previous 5.

The marking scheme for the CII’s AF6 exam has also changed slightly. I’m not 100% sure if this changed for 2023/24 but marks are now awarded as follows:

    • Knowledge and understanding of the topic is 30% of the marks (previously 40%);

    • Application and analysis of the topic is 50% of the marks (previously 40%);

    • The structure in terms of logic and coherence is 15% of the marks (previously 10%); and

    • The use of relevant work and industry examples and/or examples gained from further reading is 5% (previously 10%).

See the ‘AF6 Examplar‘ for 2023/24 for further details.

AF6 exam support

AF6 exam support is largely restricted to the CII Study text, syllabus and Examplar. The onus with this exam is on your own work and so wider support is limited. Our CII AF6 Blog will hopefully provide some additional support for you in completing your assignments.

We hope you find this useful. If you want to know more about our range of study support when you sit other CII AF and R0 exams, click here.

Until the next time…

Sam Patterson

 

CII AF5

CII AF5 Exam September 2023

As a bit of background, the CII AF5 exam is a three hour exam. The exam itself is a fact-find basd exam, with eight main compulsory questions that will test your knowledge on various areas of financial planning. The nominal pass mark for the CII AF5 exam is 55%, and last year (in the 2022/23 year), the pss rate was 72%.

It’s less than a month to go until the next sitting of the CII’s AF5 exam. Given the case studies have not been released yet, you may be asking yourself if there is anything you should be doing?

The answer is absolutely yes, and we are here to help guide you through three things you should be doing now to give yourself the best chance of exam success.

1. Past and practice papers!

As you will probably already know yourself, past exam papers are one of the best ways for most people to prepare for an exam and the CII AF5 exam is no different. It is possible to download a free AF5 exam guide from the CII website and a host of ‘practice tests’. You can find these by clicking HERE.

These are updated past exam papers so regard them as good pre-fact find preparation. Now the fact-finds you will look at in past and practice exam papers will not be the same as the one you will be faced with in September, however it will allow you to become more familiar with the fact-find format of the AF5 exam.

It may surprise you to learn that in the vast majority of cases, the candidates that narrowly fail could easily have picked-up an extra 10-15% of the marks available, not by knowing more technical knowledge, but instead through applying better exam technique. Therefore familiarising yourself with past AF5 exams is vital.

2. Familiarise yourself with the types of question

So I’m sure that you will be familiar with the expression ‘past performance is not a guide to future performance’ and this applies to exams as much as it does with investment advice. There are likely to be questions in some areas of the case studies that will surprise you and it’s also likely there will be questions which are less of a surprise. Looking back at past exams will show you that there are questions that feature in just about every CII AF5 exam. Below are the six question types that you need to understand and master:

Risk-based questions

This type of question is primarily used in the CII AF5 exam and an example of a risk-based question is as follows:

‘Sanjay would like to know more about the risks associated with investments. Excluding market risk, identify the relevant investment risks and describe how they apply to the following:

(a) Cash held within the bank (8 marks)

(b) The proposed purchase of a holiday home in Spain (10 marks)’

From an exam technique point of view, it is important with the CII AF5 exam to spot the verbs used in the question. So take the above example, the verbs are identify and describe, which means when answering the 10 mark question relating to the holiday home, you would have received 5 marks for identifying the five types of risk outlined above and a further five marks for describing how these apply to Sanjay. Ideally, you would also include at least one extra risk factor with a suitable description to maximise your chances of getting full marks. History has shown that the number of marks for this type of question does vary but you could expect around 10 marks of this style in a typical exam.

Fact-find questions

As the name suggests, this style of question requires you to identify the additional information that you would require, prior to advising a client, beyond that provided in the CII AF5 fact-find. Like the risk-based question, this is a favourite type of question with examiners and therefore you should ensure you are comfortable answering these.

Depending on the exam, the focus of this question will be either the client’s objectives (e.g. Immediate financial objectives) or an element of the client’s financial planning needs (e.g. retirement planning). Remember, that asking for information that has already been provided in the fact-find shall not score well, as it shows the candidate is lacking the ability to correctly apply answers to the information provided.

An example of a fact-find question is as follows:

‘Identify the additional information you would need to discuss with Mike in order to advise on how to meet his:

(a) Immediate financial objectives (14 marks)

(b) Longer-term financial objectives (14 marks)’

Comment on questions

This is the third style of question that we will look at and this perhaps needs a little more explanation than the previous three question types. It is important to understand what the examiners are looking for with this style of question. In effect, it means ‘describe the position’. It doesn’t ask you to elicit additional information and it doesn’t ask you to make recommendations. Instead, it’s a question asking you to basically outline the information that is available to you. Hopefully the below example will help to demonstrate this:

‘Fiona is particularly concerned about the impact long-term illness or death will have on the family’s situation.

(a) Comment on the current situation and identify any weaknesses in Fiona’s protection arrangements if she suffered a long-term illness or disability. (8 marks)

(b) Comment on the current situation and identify any weaknesses in Fiona’s financial arrangements if she died tomorrow. (8 marks)’

Review questions

This style of question traditionally requires you to either:

  • Identify the key events that would trigger a review of a client’s circumstances.
  • Identify the actions you would need to take when reviewing a specific area of advice provided to clients e.g. review protection needs, ongoing suitability of investments, income in retirement.

Below is an example of a review question:

‘When conducting an annual review, list eight areas that you would specifically address with John. (8 marks)’

Explain, outline or describe questions

These may be used as a verb in one of the other questions, e.g. ‘explain the risks of…’. In this case, being aware that you are being asked to identify the risks of something is the important bit. On other occasions, it is the ‘explain’, ‘outline’ or ‘describe’ that is important. This type of question requires you to demonstrate the depth of your knowledge.

With this type of question, the examiners are asking you to provide detail. If you are not precise or you do not link the information to the scenario given, you will not score well. For example, if you are asked about taking income from an investment bond, you would probably get marks for saying something like:

  • 5% withdrawal may be taken (1 mark)
  • based on the amount invested (1 mark)
  • tax deferred (1 mark)
  • for a period of up to 20 years (1 mark)

Here is an example of a ‘explain’ question:

‘Explain to Doris the ‘small pots’ rules that allow her to take her preserved personal pension policies immediately and the tax implications of this course of action. (8 marks)’

Recommendation questions

Given the CII AF5 exam concentrates on financial planning, it really shouldn’t come as a huge surprise that recommendation questions feature in nearly every CII AF5 exam. Below is an example of a recommendation question:

‘Detail and justify the recommendations you would make in respect of each of the following financial objectives. No calculations are required. Candidates will be rewarded for supporting their recommendations with relevant evidence and demonstrating how the recommendations work holistically to meet the client’s objectives.

(a) To provide financial security for herself and her children in the event of illness.(10 marks)

(b) To provide financial security for her children in the event of her death. (8 marks)’

From an exam technique point of view, again notice the verbs that are used in the question. Take the example question for instance- detail and justify. Part (a) of the question will probably look for five recommendations that meet the client’s needs, with a further five marks justifying these.   

3. Read the examiner’s comments from previous exams!

You may or may not be aware, but in the past CII AF5 exam papers, there are examiner’s comments that are used to highlight where candidates scored well but also struggled.

You can via the February 2023 CII AF5 exam paper HERE and the September 2022 CII AF5 exam paper HERE. The examiners’ comments are found on page 10 of each of these documents so we’d strongly suggest that if you complete a past paper or two, as we suggest in point number 1, that you also read these examiners’ comments following this.

Final thoughts

It’s true to say that the hard work when preparing for a CII AF5 exam begins when you receive the case study. However, by doing the three above steps, you should put yourself in the best position to pass!

If you’d like some further tips on effective revision, click the below:

How to pass your CII AF exam first time

One of the best revision tips I ever learnt

Good luck with the exam!

Sam Patterson

R06 July 2023

R06 July 2023 – Learn the questions!

The July R06 exam is quickly approaching and it’s vital that you make the best use of your time ahead of the exam. Afterall, the exam is a test of knowledge so you need to ensure you have as much as that as possible! If you would like our views on potential technical areas that may be tested in the upcoming exam, click here to read our blog!

However, if you do not answer the question the examiners have set, the exam will likely not go so well! Now this seems obvious but in our 28-years experience in training candidates through exams, not properly understanding the question asked if one of the major reasons why candidates fail the R06 exam. So we wanted to bring you a blog to share with you the types of question that will be asked in the R06 exam, and how to answer them!

Types of questions

So I’m sure that you will be familiar with the expression ‘past performance is not a guide to future performance’ and this applies to exams as much as it does with investment advice. There are likely to be questions in some areas of the case studies that will surprise you and it’s also likely there will be questions which are less of a surprise. Looking back at past exams will show you that there are questions that feature in just about every RO6 exam. Below are the six question types that you need to understand and master:

Risk-based questions

This type of question is primarily used in AF5 but it may also be used in RO6 (although it’s not been regularly used in this exam). An example of a risk-based question is as follows:

‘Sanjay would like to know more about the risks associated with investments. Excluding market risk, identify the relevant investment risks and describe how they apply to the following:

(a) Cash held within the bank (8 marks)

(b) The proposed purchase of a holiday home in Spain (10 marks)’

From an exam technique point of view, it is important with R06 to spot the verbs used in the question. So take the above example, the verbs are identify and describe, which means when answering the 10 mark question relating to the holiday home, you would have received 5 marks for identifying the five types of risk outlined above and a further five marks for describing how these apply to Sanjay. Ideally, you would also include at least one extra risk factor with a suitable description to maximise your chances of getting full marks. History has shown that the number of marks for this type of question does vary but you could expect around 10 marks of this style in a typical exam.

Fact-find questions

As the name suggests, this style of question requires you to identify the additional information that you would require, prior to advising a client, beyond that provided in the R06 case studies. Like the risk-based question, this is a favourite type of question with examiners and therefore you should ensure you are comfortable answering these.

Depending on the exam, the focus of this question will be either the client’s objectives (e.g. Immediate financial objectives) or an element of the client’s financial planning needs (e.g. retirement planning). Remember, that asking for information that has already been provided in the fact-find shall not score well, as it shows the candidate is lacking the ability to correctly apply answers to the information provided.

An example of a fact-find question is as follows:

‘Identify the additional information you would need to discuss with Mike in order to advise on how to meet his:

(a) Immediate financial objectives (14 marks)

(b) Longer-term financial objectives (14 marks)’

Comment on questions

This is the fourth style of question that we will look at and this perhaps needs a little more explanation than the previous three question types. It is important to understand what the examiners are looking for with this style of question. In effect, it means ‘describe the position’. It doesn’t ask you to elicit additional information and it doesn’t ask you to make recommendations. Instead, it’s a question asking you to basically outline the information that is available to you. Hopefully the below example will help to demonstrate this:

‘Fiona is particularly concerned about the impact long-term illness or death will have on the family’s situation.

(a) Comment on the current situation and identify any weaknesses in Fiona’s protection arrangements if she suffered a long-term illness or disability. (8 marks)

(b) Comment on the current situation and identify any weaknesses in Fiona’s financial arrangements if she died tomorrow. (8 marks)’

Review questions

This style of question traditionally requires you to either:

  • Identify the key events that would trigger a review of a client’s circumstances.
  • Identify the actions you would need to take when reviewing a specific area of advice provided to clients e.g. review protection needs, ongoing suitability of investments, income in retirement.

Below is an example of a review question:

‘When conducting an annual review, list eight areas that you would specifically address with John. (8 marks)’

Explain, outline or describe questions

These may be used as a verb in one of the other questions, e.g. ‘explain the risks of…’. In this case, being aware that you are being asked to identify the risks of something is the important bit. On other occasions, it is the ‘explain’, ‘outline’ or ‘describe’ that is important. This type of question requires you to demonstrate the depth of your knowledge.

With this type of question, the examiners are asking you to provide detail. If you are not precise or you do not link the information to the scenario given, you will not score well. For example, if you are asked about taking income from an investment bond, you would probably get marks for saying something like:

  • 5% withdrawal may be taken (1 mark)
  • based on the amount invested (1 mark)
  • tax deferred (1 mark)
  • for a period of up to 20 years (1 mark)

Here is an example of a risk-based question:

‘Explain to Doris the ‘small pots’ rules that allow her to take her preserved personal pension policies immediately and the tax implications of this course of action. (8 marks)’

Recommendation questions

Given the RO6 exam concentrates on financial planning, it really shouldn’t come as a huge surprise that recommendation questions feature in nearly every R06 exam. Below is an example of a recommendation question:

‘Detail and justify the recommendations you would make in respect of each of the following financial objectives. No calculations are required. Candidates will be rewarded for supporting their recommendations with relevant evidence and demonstrating how the recommendations work holistically to meet the client’s objectives.

(a) To provide financial security for herself and her children in the event of illness.(10 marks)

(b) To provide financial security for her children in the event of her death. (8 marks)’

From an exam technique point of view, again notice the verbs that are used in the question. Take the example question for instance- detail and justify. Part (a) of the question will probably look for five recommendations that meet the client’s needs, with a further five marks justifying these.                                          

I hope you have found a breakdown of the different types of questions examiners may use helpful! There’s still time to listen to our audio material to hear how these objectives – including ESG – have been tested in previous R06 exams. We also have TWO FREE podcasts that are available for the R06 exam.                                       

Best of luck with the exam!

Sam Patterson

Crack the Code to R06 July 2023 Success!

The case studies that will be tested in the July 2023 sitting of R06 are now available. If you haven’t seen these yet, you can download them here.

Case study is downloaded, but what do I do now?

You now have until now until Tuesday 4th July to prepare for the exam. The case studies are issued in advance of the exam for a reason – to help you prepare for the exam. This will test across a range of different aspects of financial planning that are based on two client case studies. As you will not know the actual questions you will face in the R06 exam until the day, it makes sense to prepare for any eventuality before then.

With around two weeks until the exam, you may think reading the case studies are your last chance but our audio material is over four hours long and covers all aspects of planning covered within the R06 exam. For more information or to download the audio material, click here.

What areas should I focus on in the CII R06 July 2023 exam?

Based on the case studies, we believe that you may be required in the R06 July 2023 exam to have a knowledge of the following topics:

Case Study One: Declan and Carmen
  • Further information you would need from Declan and Carmen to provide financial advice regarding income throughout retirement.
  • Advantages and disadvantages of Discretionary Trusts.
  • Recommend and justify the appropriateness of a Discretionary Trust.
  • The role of Trustees.
  • Benefits of cash-flow forecasting.
  • Information related to the Trust Registration Service.
  • EIS.
  • Holdover Relief.
Case Study Two: Sam and Kerry
  • Describing what Salary Sacrifice is.
  • Advantages and disadvantages of Salary Sacrifice.
  • Comment on current protection arrangements.
  • Positive and negatives in relation to ESG investing.
  • Describe positive and negative screening.
  • SRI.
  • Guardianship.
  • Lifetime ISAs.
  • Comment on current protection arrangement.
How does the CII R06 July 2023 exam compare with previous exams?

I have to say, there are some familiar themes. Case study one is a couple in retirement, with an objective to ensure sufficient income throughout retirement, which is nothing new. However, something that is slightly different is that both Declan and Carmen are over State pension age and already in receipt of pension income, so it’s difficult to see how the examiners may test any areas surrounding pensions. From the information already provided in case study one, I’d expect Discretionary Trusts to be tested and potentially Holdover Relief, given these are two technical areas that would link in well with the information provided in the case study.

In terms of case study two, there is a huge emphasis on protection, which again is nothing particularly new for R06. Also within the case study, there is clearly a protection shortfall for Mr and Mrs, including an over-reliance on death-in-service benefits. From technical areas within case study two, Salary Sacrifice seems the obvious one that jumps out, in addition to a clear signal towards ESG investing (covered in detail on page 3/21 of your R06 study text!). A potential outlier that may be tested from case study two is guardianship; Sam and Kelly have three young children and we know Wills are up-to-date, but there is no mention of guardianship?

What do I need to do to pass the CII July 2023 R06 exam?
  • Familiarise yourself with the clients’ circumstances, right down to remembering the names! Although the case studies that you will have in the exam are identical to what you have already, you should know their circumstances well. You should also be able to apply your knowledge to their circumstances – generic answers will not score well.
  • Revise and read around the technical aspects. Google is a good place to start or use the CII R06 study text.
  • Be familiar with the technique and style of answers the CII will want. This is NOT just about applying your day job to an exam paper. 
  • Be sure to check out our FREE downloadable podcasts here.

Best of luck with the exam!

Sam Patterson

CII R03 exam

CII R03 exam: Investment Bonds explained

Of the queries we receive from students sitting the CII R03 exam Personal Taxation, a large proportion of these relate to Investment Bonds; primarily what are Investment Bonds and what actually is top-slicing relief. To be fair, the CII’s AF1 exam will also examine Onshore and Offshore Bond taxation and does so quite regularly so this information also applies equally to both.

With the changes to capital gains allowances that have been introduced in the 2023/24 tax year, and the ongoing rumours that dividend tax may be brought in line with income tax, it is now more important than ever to properly understand investment bonds and how top-slicing relief can be used to reduce any tax liability.

The CII R03 exam and AF1

There is every chance that your R03 or AF1 exam will have a question or two based on the content of this article – so it could make all the difference.

I’ll also offer you a crumb of comfort. The CII R03 exam expects you to answer one question around every minute. This means that there is a limit to how complex a question can be. For example, in this blog I will cover the five steps for a top-slicing calculation. In reality, you would not have time to complete a full top-slicing calculation question in R03 exam. That’s the good news. The bad news is that a question could potentially test one or more parts of it and how it works. It’s also worth noting that AF1 is very different and a full calculation might be required here.

For more information how to prepare for your R03 exam and AF1, click on the links purchase our R03 audio material or AF1 material, which is around 4-7 hours long and covers all of the major examination areas (including top slicing relief) in greater detail.

What is the tax treatment of Onshore and Offshore Bonds?

Before I go into how to calculate a top sliced gain, first I want to just outline the differences between Onshore and Offshore Bonds, which are both types of Investment Bonds. The below demonstrates the difference in tax treatment between Onshore and Offshore Bonds, which again will be tested in your R03 exam:

Onshore Bonds

  • Only available to UK residents.
  • Taxed as savings income and therefore the top part of income, so after earned and dividend income.
  • Assumed that 20% tax has been paid within the underlying investment funds.

Offshore Bonds

  • Available to both UK and non-UK residents.
  • No tax is paid within the bond. This means that the offshore bond benefits from ‘gross roll up’, meaning the investment will row at a faster rate because no tax is deducted.
  • Gains will be tax-free if they’re covered by an available allowance; such as personal allowance, starting rate for savings and personal savings allowance.
 
So what is top slicing relief?

An individual doesn’t pay any tax themselves on bond gains until a chargeable event occurs. However, when a chargeable event does occur, a gain will be taxed in the tax year of the event. This could lead to a larger proportion of tax being paid at higher rates than would have been if gains were assessed on an annual basis.

Top slicing is the remedy for this, as the relief is an amount deducted from the final tax liability and is based on the difference between the tax on the full gain and the ‘average’ gain (or ‘sliced’ gain). Below is an example explaining the steps needed to calculate top slicing relief.

Step One

  • Calculate the taxable income for the year and identify how much falls within the:
    • personal allowance.
    • starting rate for savings income.
    • personal savings allowance.
    • basic/higher/additional tax bands (as appropriate).

Step Two

  • Calculate the tax due on the gain across all tax bands.
  • Deduct 20% basic rate tax to find the individual’s liability for the tax year.

Step Three

  • Calculate the annual equivalent of the gain. The annual equivalent is calculated by dividing the gain by number of full policy years between the date the policy was taken out and the date of the chargeable event*.

Step Four

  • Calculate the individual’s liability to tax on the annual equivalent.
  • Deduct 20% basic rate tax on the annual equivalent and multiply by the result in step three.
  • This gives the individual’s relieved liability.

Step Five

  • Deduct the individual’s relieved liability at step four from the individual’s liability at step two to give the amount of top-slicing relief due.

*For a partial surrender, you would divide the gain by the number of full years back to the last chargeable event. So where no chargeable events have occurred, the number of full years is back to the start of the policy.

If you are anything like me being a kinesthetic learner, you’ll need to see these steps in an example! so let’s take Stuart. Stuart took out a single premium onshore bond of £60,000 on 1 January 2017. It was fully encashed on 1 July 2022 for £80,000, meaning a £20,000 gain. Stuart’s other income (before deducting personal allowance) for the 2022/23 tax year was £47,770.

So following the five steps above, this knowledge would be applied to Stuart as follows:

Step One

  • Stuart’s taxable income is £55,200 (£47,700 – £12,570 + £20,000), so he is a higher-rate taxpayer.
  • The tax due on this income is as follows:
    • £35,200 (earned income – personal allowance) x 20% = £7,040
    • £500 (personal savings allowance) x 0% = £0
    • £2,000 (BRT band of £37,700 – income of £35,200 – PSA of £500) x 20% = £400
    • £17,500 (bond gain of £20,000 – PSA of £500 – gain within BRT of £2,000) x 40% = £7,000
    • Total income tax £14,440.

Step Two

  • The tax due on the gain is £7,400 (£7,000 + £400).
  • Basic rate tax treated as paid within the bond is £4,000 (£20,000 x 20%).
  • Stuart’s additional tax liability is therefore £3,400 (£7,400 – £4,000).

Step Three

  • 1 January 2017 to 1 July 2022 = 5 full years the policy was in force.
  • Therefore, annual equivalent of the gain is £4,000 (£20,000 gain /5).

Step Four

  • Tax on the annual equivalent of the gain (£4,000) is £1,000 ((£500×0%) + (£2,000x 20%) + £1,500 x 40%)).
  • The basic rate tax treated as being paid on the annual equivalent gain is £800 (£4,000 x 20%).
  • Stuart’s relieved liability on the gain is therefore £1,000 ((£1,000 – £800) x 5 years).

Step Five

  • The amount of top slicing relief is £2,400 (£3,400 – £1,000).
  • Stuart’s overall liability after top slicing relief is £12,040 (£14,440 – £2,400).
  • The overall liability after deducting the basic rate tax treated as being paid of £4,000 (£20,000 x 20%) is £8,040 (£12,040 – £4,000).
  • The method of calculation gives the benefit of multiple personal savings allowances, meaning just £1,000 (£8,040 – £7,040 (£35,200 x 20%)) of additional tax is paid in respect of the gain

Summary

I hope this article has been helpful to enable you to be successful in your CII R03 exam. Over the coming weeks, we will continue to publish a number of blogs on well-tested areas of the diploma exams. Should there be an area you would like me to cover, please do not hesitate to contact me via LinkedIn.

One final thought, remember whilst we are now in the 2023/24 tax year, the CII exam peiod runs from September to September, so if you are sitting your R03 exam before 1st September, it will be tested on the tax rules in place last tax year!

Best of luck with your R03 exam.

Sam

AF1 & the Trust Registration Service – how could it be tested?

Are you planning on sitting an upcoming CII AF1 exam? If so, I’d look to brush up on your knowledge relating to the Trust Registration Service. But don’t bother looking in any of the CII study texts…

Despite being tested in both the September 2022 and February 2023 AF1 exam papers, the Trust Registration Service is unfortunately not covered in any real detail in either the AF1 or J02 study texts.

However, given its prevalence in the industry, I can understand why it is featuring in the AF1 Tax and Trusts exam (and it is covered by the syllabus of the AF1 exam!). So I wanted to produce an article to concentrate on three main areas:

  • provide a background to the Trust Registration Service.
  • cover how it was tested in the last two AF1 exams.
  • possible future ways it may be tested in upcoming exams.

Should you wish for a further AF1 revision aid that allows you to learn on the move, click here to download over 6 hours of audio material covering all things AF1!

A background to the Trust Registration Service

The Trust Registration Service is basically the government’s way of keeping track of all of the trusts in the UK. The service itself is managed by HMRC and it records all of the information of trusts and the individual’s associated with the trusts, including settlors, trustees, beneficiaries and any other key connected parties.

Trusts that were in existence on or after 6 October 2020 had to have been registered by 1 September 2022, with any trusts created now needing to be registered within 90 days of creation. In addition to this, any changes to trust details or circumstances must also be logged with the Trust Registration Service within 90 days of the change.

How’s it been tested previously in AF1 exams?

For the September 2022 AF1 exam, there was a five mark question testing knowledge surrounding who was responsible for registering a Discretionary Will Trust and by when? On this occasion, there was a mark available for the following points:

  • Trustees must register the trust with the Trust Registration Service..
  • ..within two years after the date of death..
  • ..if the trust still exists and has not been wound up..
  • ..or earlier if the trust accepts additional assets..
  • .. or if it becomes a taxable trust.
  • The Will Trust is excluded from registration for a period of 2 years from the date of death.

For the February 2023 AF1 exam, there was also a five mark question testing knowledge surrounding who was responsible for registering a Discretionary Trust and the penalties for failing to register the trust in time. For this question, the marks were allocated for the following answers:

  • Trustees must register the trust within 90 days..
  • ..of the date it was created.
  • A penalty of £5,000 may be payable for failure to register a trust on time..
  • .. although there is no penalty for first offence/late registration..
  • .. unless trustees deliberately fail to register.
What areas relating to the Trust Registration Service haven’t been tested?

It’s important to state at this stage that I have no knowledge of whether the Trust Registration Service will be tested again in an AF1 exam paper, especially given the deadline to register all existing trusts (and no doubt was a headache to the majority of people in the industry!) passed in September 2022.

However, looking at the two ways the Trust Registration Service has been tested previously, it can become clear that a few topics related to the Trust Registration Service haven’t been tested in an AF1 paper yet. These are:

What types of trusts are exempt from registration?

  • Trusts with a perceived low risk of money laundering are excluded..
  • .. which would include registered pension schemes..
  • .. charities..
  • .. trusts established by statute (for example intestacy).
  • For a full list of other trusts exempt, please click here.

What trust information does a trustee need to register a trust?

  • Name of the trust
  • Date the trust was created
  • To say if the trust is an express or not
  • Details about if a non-UK trust has a business relationship with the UK
  • Details about any UK land or property the trust has purchased.

What personal information does a trustee need to provide when registering a trust?

  • Name
  • Date of birth
  • National Insurance number
  • Address
  • Telephone number
  • Country of residence
  • Country of nationality

Any of the above would need to be incorporated into the case studies of the relevant AF1 exam, however, it would seem that these are areas related to the Trust Registration Service that has not yet been tested.

I hope you’ve found this article useful and good luck with your AF1 exam preparation!

Sam Patterson