How to Triumph Over the CII’s Multi-Response Question

If you are studying toward the CII’s diploma in regulated financial planning you will need to get to grips with the ‘multi-response’ questions which feature in the R01, R02, R03, and R04 exams.

These questions can be tricky as the question will have between four and six answer options (although you’ll be pleased to hear four is most common) and at least two of the answers will be correct, unlike the standard multiple-choice questions where it’s simply a case of choosing one correct answer from four options.

Let’s look at an example from a CII R04 examination guide.

Ben, a higher-rate taxpayer, made the following investments to fund his retirement nearly six years ago and has made no withdrawals to date.

When considering taking benefits, from a tax perspective he should be aware that:

1. income from all his investments will be subject to tax at the basic rate.
2. any future gains from the VCT will be subject to Capital Gains Tax only.
3. on full encashment, gains from his investment bond will incur a further tax liability.
4. a maximum of £294,000 can be withdrawn with no immediate tax liability. 

As we start to look through the detail, we’ll see that we can disregard two options straight away. The question stem clearly tells us that Ben is a higher-rate taxpayer, so we can cross option A. VCTs are a tax-incentivised investment and, as such, are not liable to CGT. We can therefore discount this option too.

We know at least two of the multi-response answers are correct so we could then just mark C and D as correct and move on; however, most candidates will want to make sure by reading through the remaining options. So let’s take a look at the last two options.

Option C states that ‘on full encashment, gains from his investment bond will incur a further tax liability’. This is correct. As a higher rate taxpayer, Ben will be liable to an additional 20% on any gain.

Option D requires a calculation. Both the ISA and the VCT can be withdrawn with no immediate tax liability. So, that’s £270,000. For the investment bond, we can use the 5% rule to take 6 years’ worth of withdrawals based on the bond’s original value: £80,000 x 5% x 6 = £24,000. Add that to the £270,000 to give a correct answer of £294,000.

This makes the answer to this question C and D.

Worth remembering…

We have already mentioned that we know at least two answers are correct in the multi-response questions. In the example above a brave candidate could have saved themselves quite a bit of time if they remembered, when they had eliminated options A and B, that options C and D would then have to be the correct answer.

It is also worth remembering, especially if you are unsure of all the answers, that most of the time only 2 of the options given are correct.  For example, the latest R04 exam guide shows that out of 11 multi-response questions, 9 have 2 correct answers, and only 2 questions have 3 correct answers – the other R0 exams follow a similar pattern.

A multi-response worked example for R01, 2 and 3 is also available in our free How to Pass Guides which you can request here.

Grab the resources you need!

If you’re studying for your CII R03 exam, and you want to walk into the exam feeling like you’ve ‘got this’, grab our free taster to try out one of Brand Financial Training’s resources for yourself.  Click the link to download the R03 mock paper taster now!

Information in this article is correct as at 4^th October 2021.