Our Post-Exam Review of the February 2022 CII AF5 Exam
The CII has now released the question paper for the February sitting of AF5 so we can see how we did in our pre-exam analysis.
If you haven’t already seen the exam guide for February, you can access it here.
This time, the fact-find, released two weeks prior to the exam, concerned Alan and Lydia Potter who had recently set up a new limited company.
The objectives, given on exam day, were as follows:
- To assess the suitability and tax-efficiency of their current financial arrangements
- To ensure adequate protection is in place for their family and their business
- To establish a tax-efficient strategy to draw income from their new company
- To establish the merits of purchasing a commercial premises for their new business
- To set up appropriate pension arrangements
- To ensure that they are able to retire at age 60
(a) Identify the additional information that you would require in order to advise Alan and Lydia on the suitability and tax efficiency of their current financial arrangements. (12)
(b) Explain to Alan and Lydia the reasons why their current employment position may pose a risk to their future financial objectives. (10)
The first part of this question was fact-finding which we provide for each of the objectives we have used. The majority of the model answers provided by the CII were included in our fact-finding model answers. The question asked in part (b) was not a style we believe had been asked before in an AF5 paper and not a question we had anticipated in its own right but we hope that well-prepared candidates would have used their knowledge and experience and application of the information given in the analysis as well as the fact-find to gain many of the marks available.
(a) Identify the key issues that should be addressed by Alan and Lydia to ensure that their protection needs are met both now and in the future. (10)
(b) Recommend and justify suitable individual protection policies that Alan and Lydia could set up in a tax-efficient manner through their new company to provide life cover for the surviving spouse in the event of either death. (12)
Our first predicted objective was to provide financial security and this part of the analysis included a question on their present situation which covered the majority of the key issues. We also had included content on relevant life policies which could have been used to gain most of the marks in part (b).
(a) Explain to Alan and Lydia four key benefits and four key drawbacks of switching their current mortgage to a new five-year fixed-rate mortgage. (8)
(b) Explain to Alan and Lydia how they could use their pension funds to purchase the commercial property and the benefits of this course of action. (12)
One of our predicted objectives was to improve cashflow and so we are pleased to say that one of our recommended actions was to switch their mortgage to a fixed rate. Candidates could have used this information to gain most of the marks available. The purchase of a commercial property was well sign-posted in the fact-find so part (b) was covered in full.
(a) Explain to Alan and Lydia the benefits of using a Discretionary Fund Manager and how this could assist them in making future Environmental, Social and Governance (ESG) investments. (10)
(b) Explain to Alan and Lydia the key reasons why they should consider making regular monthly investments, rather than a lump sum investment, based on their current situation. (10)
Within our generic section, we provided details on discretionary fund managers and the services they might provide as well as the benefits and drawbacks all of which would have been useful to compile an answer to (a). In part (b) candidates needed to really consider the client’s personal circumstances to answer this question; our analysis covered many of the points so a well-prepared candidate using the content from across the analysis should have achieved many of the marks here.
(a) Identify the key aspects of Alan and Lydia’s financial circumstances that should be taken into consideration when carrying out a stress test of their current position. (12)
(b) Recommend and justify a range of suitable actions that Alan and Lydia can take in respect of their existing pensions, savings and investments to improve the prospects of meeting their objective of retiring at age 60. (14)
The model answer for part (a) was similar to the model answer for the previous question; candidates would again have had to use their knowledge of the couple’s situation and the content spread throughout the analysis to formulate an answer to this question. We had included a recommend-and-justify model answer for part (b) which should have secured most of the marks available.
(a) Recommend and justify how Alan and Lydia could draw a tax-efficient income from their company to meet their family’s ongoing expenditure requirements. (12)
(b) Explain to Alan and Lydia how the shares in their company would be treated for tax purposes in the event of their deaths. (7)
Part (a) of this question was expected, and we had covered the main features of their setting up as a limited company within our generic section, as well as a specific model answer to the benefits of them using a combination of salary and dividends. We had also covered the implications for inheritance tax on shares in a limited company to help with the answer to (b).
(a) Explain to Alan and Lydia why their existing range of investment funds within their pension policies may be unsuitable for their objectives. (10)
(b) Outline the key issues that Alan and Lydia should consider before making any changes to their existing pension arrangements from their former employers. (7)
Within our analysis, we had covered why the existing fund choice for Lydia may not be suitable as well as why Alan should consider a more diversified approach. In our self-test section, we had included a question on the information needed to advise them on their existing plans, which would have helped in part (b).
(a) Outline the key reasons why Alan and Lydia could consider investing a portion of their cash savings, rather than using this to pay off some of their mortgage. (8)
(b) Identify six key issues that you would discuss with Alan and Lydia in respect of their protection arrangements at your next annual review meeting. (6)
Part (a) we had not specifically covered but in part (b), we had included two review question model answers – both of which could have been used to gain most of the marks in (b).
Overall, this paper seemed more challenging than previous papers. The fact-find itself seemed quite ‘corporate’ but the questions regarding relevant life policies and how to structure remuneration have been tested before within AF5. However, some questions were worded in a less traditional AF5 style but despite this, candidates using our analysis, and who had prepared thoroughly, should have gained enough marks for a pass.
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!