Our Post-Exam Review of the July 2019 CII R06 Exam

The R06 exam paper from the July sitting has been released by the CII prompting us to see how we did in our pre-exam analysis.  

If you haven’t seen the paper yet, you can access it here.

Case Study 1

Case Study 1 focused on Mary whose husband Ken had recently died.  Mary had three adult children and five grandchildren.

Her financial aims were to:

• generate a sustainable income in retirement
• protect the tax efficiency of her late husband’s investment portfolio
• review the investment holdings that she inherited from her late husband
• ensure she has sufficient funds to meet any potential long-term care costs

The R0 paper usually starts with a fact-finding question, and this was no exception. Delegates had to state the additional information needed to advise Mary on how to generate a sustainable income.  This question was for 12 marks and, as our analysis always includes fact-finding model answers for each of the objectives, candidates had enough information to score the majority of the marks here.

The paper continued with a question about Ken’s ISA: how it would be taxed and how Mary can ensure that its tax status is retained, including her options.  This question was expected, and we had provided candidates with the full information on ‘continuing accounts’ and ‘additional permitted subscriptions’ as well as the options open to Mary.

Mary had received the proceeds of a life policy following Ken’s death, and the next question asked for the drawbacks of her continuing to hold this in her current account.  Our model answer was for ‘commenting on the money that Mary is holding in her current account’ and did include five bullet points – all of which were drawbacks!

Students then had to state the benefits and drawbacks of Mary’s choosing to keep Ken’s portfolio of shares.  This question was for ten marks, and we had provided a table of the advantages and disadvantages of Mary’s retaining the inherited investments.

The next question asked for the key factors Mary should consider when considering cancelling a PMI policy.  We had included a range of content on PMI including the types of plan available, the main features and the pros and cons of Mary’s continuing with the policy; we hope we had given sufficient information for a candidate to adapt to answer this question.

The penultimate question tested how onshore bonds could provide a tax-efficient income and access to capital (for 11 marks) and why Mary should consider investing in a range of multi-manager funds (for 6 marks).  Unfortunately, we had not considered multi-manager funds.  In our generic section, candidates would have found the pros and cons of holding an investment bond, and in the analysis itself, we covered discounted gift trusts, which would provide an income for Mary, but she would not have been able to access capital with this product.

The last question asked for an explanation of the process that must be followed by Mary’s executors to calculate and settle any IHT on her death.   This was not a question we had anticipated, but we are confident that students would have gained some of the marks for using their own knowledge to answer this particular question.

Case Study 2

The second case study involved Tom and Laura; a married couple with two young children.

Their financial aims were to:

• consider a suitable structure for Tom’s new business venture
• put in place a suitable investment strategy to fund their retirement
• consider the early repayment of their mortgage

The paper started with a ‘factors’ question: those that would need considering when advising on funding their retirement planning strategy.  We had covered this objective by providing a fact-finding model answer, a ‘comment on’ model answer as well as products to use; we believe therefore enough information was provided for candidates to answer this question.

The exam continued with having to state the benefits of Tom and Laura’s making overpayments to their mortgage, and we are pleased to say we had provided a comparison of the pros and cons of their increasing their monthly payments, as well as paying a lump sum off their mortgage.

Students were then asked to explain how a self-employed business would be taxed as well as if Tom set up as a limited company.   For this objective, we had listed the advantages and an explanation of Tom’s setting up as a limited company as well as the pros and cons of setting himself up as a sole trader; within this analysis, there was the necessary information on taxation and national insurance contributions for candidates to answer this question in full.

The next question asked for a recommendation and justification of the actions that could be taken to improve the tax efficiency of their current financial arrangements.  This question was for 14 marks and not a stated financial aim; however, throughout the analysis we had picked up on various areas which could have been useful in answering this question, such as the fact that Laura was not using her PSA, her dividend allowance or her CGT exempt amount and for Tom, anything over £2,000 in dividends will be taxed at 32.5%. We covered salary sacrifice, the fact that Tom will lose some of his personal allowance and what he should do to help with this, as well as pensions and paying off Tom’s personal loan.

The penultimate question was in three parts: the process an adviser should follow to calculate Tom’s maximum tax-relievable pension contribution; the benefits of his making extra contributions to his employer’s group personal pension (PP) rather than paying into a new PP; and finally, the factors that Tom should consider when deciding whether to retain his existing balanced lifestyle tracker fund or switch.  The total question was worth 26 marks; we had covered in full, the process to calculate the maximum pension contribution for 9 of those marks, and we had mentioned Tom’s lifestyle tracker did not match his ATR, that the fund has no flexibility, and he wants to retire early, so candidates should have picked up some of the marks there, and we are sure that candidates will have used their own knowledge to explain the benefits of making contributions to his employer’s scheme.

The final question asked for 8 issues an adviser should take into consideration when reviewing their pension arrangements at the next annual review; our review question covered both pension and investment planning, so should have been sufficient for candidates to do well on this final question.

All in all, this was another fair R06 paper with a lot of signposts, in the information and in their objectives, as to what might be tested in the exam. We are confident that anyone who used our analysis in their preparation for sitting this paper, would have achieved a pass.

Grab the resources you need!

If you’re studying for your CII R06 exam, and you’re wanting to feel more confident on exam day, grab our free taster analysis to try out one of Brand Financial Training’s resources for yourself.  Click the link to download the R06 case study analysis taster now!