Our Post-Exam Review of the April 2018 CII AF5 Exam

Now the CII have released the papers for the April 2018 exams, we can see how we did in our AF5 analysis and how accurate we were in our predictions of what might come up.  

If you haven’t already seen the question paper for October, you can access it on the CII website.

Our comment over the October 2017 exam was that more than 50% of the questions were regarding pensions and retirement planning; this paper seemed to be starting in the same way with quite a few questions on pensions but let’s start with the objectives which are only given at the time of the exam.

The immediate objectives were:

• To review the tax-efficiency of David and June’s current pensions and investments.
• To purchase a holiday home within the next year.
• To gift a lump sum of £400,000 to David’s daughter.

The longer-term objectives were:

• To ensure that David and June’s estates pass to their intended beneficiaries
• To mitigate any potential Inheritance Tax liability.
• To set-up a savings strategy to assist with university costs for their grandchildren.

Signposted But Not Tested

So the first thing to say is that the second immediate objective is that they wanted to buy a holiday home within the next year – we are told this in the fact-find – yet there is not one question in the exam on this. Why signpost it and then not ask questions around it?  Why waste candidate’s time studying an area which looks like it’s going to be tested but then is not?

Tested But Not Signposted

The next thing to say is that the first objective was not one we had predicted.  In past fact-finds (and we’ve been doing this for many years!), the objectives have usually been signposted to an extent but not this one.  So this means the first question which was the fact-find question on the suitability of their current pension arrangement was not specifically covered.  Having said that, we did include content on ensuring June had sufficient income should David pre-decease her, and their pension arrangements were mentioned as part of tax efficiency. We also had information on the assets held in his SIPP. All this information would have helped construct an answer, but this does appear to be a different stance this paper has taken.

A Diversion from the Normal Style

The second part of this question was an explanation of why the proceeds of a property sale are suitable to be held in NS&I Income Bonds in the short term.  Again, this seems to be a slight diversion from the normal style of questions.  The question gave 8 marks, so we will be keen to see what the model answer is for this when the CII release the entire paper and model answer; presumably it will cover that no notice is needed, there are no penalties and as government backed this does give them security – the downsides being of course that David is a higher rate taxpayer so the 1% annual return will suffer 40% tax and he has a high ATR.

Six ‘Recommend and Justify’ Questions

In the paper this time, there were six ‘recommend and justify’ questions; the first few covered why David should consider reducing the monthly income withdrawals from his SIPP, why he should consider drawing his State pension and why he should retain the term assurance policy.  Also within Question 2 were the lifetime allowance and why June should consider using her personal pension to buy an annuity.

It’s hard to see where the marks will be given here; usually a question will give half the marks for the recommendation and half the marks for the justification.  Here, it appears there is one recommendation so again we will be keen to see the exam guide when it’s released.

We had provided information on the State pension, on lifetime annuities and also why David should reduce the amount being taken from his SIPP as well as information on the safe withdrawal rate, all of which could be used and adapted to suit this line of questions.

The investment bond appeared in Question four, and candidates were asked to explain why the fund might be suitable for him and the next ‘recommend and justify’ question (the fourth!) on why he should keep the bond.  We had covered the investment bond including the pros and cons of his holding onto it and the tax efficiency.

The exam continued with benefits and drawbacks of his retaining the investment trust portfolio, their will situation and IHT.  We had included plenty of information on what they should do with their wills to improve their situation with children from previous marriages and gave enough information to answer the fifth ‘recommend and justify’ question regarding IHT mitigation.

The key duties of an executor should have provided some welcome relief, as this has been tested many times before by the CII.

Onto the sixth recommend-and-justify question.  Candidates were told that the recommendation was to use a gift intervivos policy so are the 10 marks for the justification or are they for stating how the policy would be set up?  Again it seems like a confusing question.

Next up, was the objective of funding university fees.  Firstly, candidates had to state how Junior ISAs would need to be set up and then explain why using a range of UK equity income funds could be suitable to generate a lump at 18 and then comment briefly on the drawbacks for them if they chose to invest in Junior ISAs.  We had provided information on the products, and we hope that candidates could have adapted the information to the questions asked.

Finally, the last question focused on the issues that an adviser should discuss in respect of IHT planning at their next review meeting.

Different From Previous Papers

This paper felt to us different from previous papers – the focus seemed to be more on why products which seemed inappropriate should be retained or invested in.  In addition, six ‘recommend and justify’ questions in one paper seems too many and also difficult to know how to construct an answer, when the recommendation has been given.  Finally we are disappointed that one objective as given in the fact-find was completely ignored in the exam.

Re-marks : High number of candidates being rewarded a worrying high number of marks

We did hear from a high number of candidates of the April 2018 exam that they had failed and subsequently requested a re-mark.  A worryingly high number of candidates then passed on a re-mark.  Two of those had failed by 8 and 9 marks – but were then awarded those marks (possibly more) and passed.  This is of great concern to us as it makes us wonder what is going on at the CII.  It is also very unfair to those who failed and chose not to pay the hefty re-mark fee, but would have passed on a re-mark.  We are going to be writing to the CII about this.

Grab the resources you need!

If you’re studying for your CII AF5 exam, and you’re wanting to prepare as much as possible, grab our free taster analysis to try out one of Brand Financial Training’s resources for yourself.  Click the link to download the AF5 fact-find analysis taster now!