Our Post-Exam Review of the June 2021 CII AF5 Exam
The CII has now released the exam guide for the June 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 June, you can access it on the CII website.
This time, the fact-find, released two weeks prior to the exam, concerned a single client; 50-year-old Julie with two dependent children recently divorced from Peter.
The objectives, given on exam day, were as follows:
- To review the suitability and tax efficiency of Julie’s current financial arrangements following her divorce.
- To ensure adequate protection is in place for herself and her children.
- To ensure Julie is able to protect the ongoing maintenance payments from her ex-husband.
- To invest a portion of the lump sum payment from Julie’s divorce settlement.
- To put in place a suitable investment strategy for her pensions and personal investments.
- To ensure that she has adequate income to retire at age 60
As is normally the case, the exam started with a fact-finding question; candidates had to identify the additional information needed to advise Julie on the tax efficiency of her current financial arrangements. This was for 12 marks and in part (b), the key weaknesses in her current financial and protection arrangements, following her divorce, were required for another 12 marks.
We had provided analysis of the current income that Julie receives, including the maintenance payments, dividends, and the qualification for child benefit which included tax efficiency. We had also provided the additional information that would be needed to ensure that she had sufficient income. We feel confident that, overall, we had included enough information for candidates to score well in this first question.
Next, it was a recommend-and-justify question – this time, a suitable protection policy that Julie could set up to provide a regular payment of £1,000 per month to cover the maintenance payments from her ex-husband in the event of his death. (9) Part (b) asked for an explanation of why Julie should review her current Will, nominations, and Lasting Powers of Attorney, following her divorce, and this was for 10 marks.
We had provided analysis on Julie’s taking out life cover on Peter as well as the effect the divorce would have had on her existing Will and LPA, so candidates should have done very well on this question.
Julie was recently divorced, and in this question, candidates had to identify the key benefits and key drawbacks for her of using a portion of the lump sum from her divorce to top up her existing pension contributions. This was for another 10 marks. In part (b), an explanation was needed of why Julie should consider investing some of her existing pension fund into a range of global equity funds – for yet another 10 marks!
We had provided a table of the recommendations and justifications as to why she should top up her pension contributions. We had also provided analysis on fund choices and as well as changes she should make to her funds to ensure they are suitable – all of which could have been used to answer part (b).
We were told that Julie had received a portfolio of AIM shares as part of the divorce settlement and that her ex-husband, Peter, was keen for Julie to keep these for the IHT benefits for the children. Candidates had to firstly (for 12 marks) explain the issues that Julie should take into consideration before making a decision on either retaining or selling these shares and then in (b), identify a range of alternative options that might offer Julie a more suitable method of mitigating any potential IHT liability in future. This was for 11 marks.
We had provided analysis on the suitability of her retaining the AIM shares along with all the investment risks that are associated with AIM shares. We had also stated the actions that she could take to reduce or mitigate the potential IHT liability on her estate, which included making gifts, using allowances as well as investing in EISs that also qualify for business relief.Our Post-Exam Review of the June 2021 CII AF5 Exam Click To Tweet
Next came another recommend-and-justify question – this time a range of suitable actions were required that could be taken with her pensions, savings, and investments, to improve the prospect of achieving her target of retiring at age 60. This was for 14 marks. Secondly, candidates had to state the process that would be followed to establish the shortfall in Julie’s current pension arrangements, for another 14 marks.
We had provided a table of recommendations and justifications that Julie could make to ensure she could retire at 60. This would have enabled candidates to score most of the marks available. In our generic section, we had provided the process that an adviser could use to ensure that there are sufficient funds to provide the required level of target benefits at retirement, which includes calculating the shortfall.
We had been told that Julie was a 20% shareholder in her ex-husband’s business. In this question, candidates had to outline the key benefits for her continuing to hold them for the next seven years (this was for 8 marks). In (b), an explanation was required (for 6 marks) of how a future transfer of the shares will be treated for Income Tax and CGT purposes, assuming these are transferred to Noah and Oliver as planned.
We had included an explanation of how the transfer of the shares to the children in the future would be treated for tax purposes, and so all 6 marks should have been attained by candidates using our analysis.
Next came the obligatory factors question, candidates had to explain the factors that Julie should take into consideration before deciding on whether she should take out an individual PMI policy through her former company scheme provider (this was for 10 marks), and in part (b), describe why certain elements of Julie’s existing investment portfolio may not meet her ethical criteria, and identify alternative options which may be more suitable for an ethical investor (for 8 marks).
Part (a) was covered in full, and candidates using our analysis should have achieved the marks available. We had included a selection of questions and model answers on ethical investment, which we hope would have been useful to answer part (b).
Finally the last question, and again this was in two parts: firstly, candidates had to state the main reasons why Julie should be considered a ‘vulnerable’ client – this was for 7 marks, and in part (b), identify 7 key issues to discuss with Julie in respect of her ongoing income needs at your next annual review meeting.
With the FCA taking a keen interest in the treatment of vulnerable customers, it was not a surprise to see this first question. Our analysis provided why Julie might be considered vulnerable as well as the actions that could be taken to ensure the service she received would be appropriate. For the second part of the question, we had outlined the key information that would need to be taken into consideration when helping Julie to plan her future income needs, and this could have been used to answer the second part of this question.
Overall, this paper tested a wide selection of financial planning issues – we are confident that anyone who had used our analysis in their revision would have felt very well prepared.
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!