Our Post-Exam Review of the March 2021 CII AF5 Exam

The CII has now released the exam guide for the March sitting of AF5 so we can see how we did in our pre-exam analysis.

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

This time, the fact-find, released two weeks prior to the exam, concerned a retired couple in their 70’s, Harry and Pauline.  They had two financially independent children and six grandchildren.

The objectives, given on exam day, were as follows:

Immediate objectives

• To review Harry and Pauline’s current pension arrangements.
• To consider any financial implications resulting from Harry’s recent heart attack.
• To review the suitability and tax efficiency of their current financial arrangements.

Longer-term objectives

• To ensure Harry and Pauline can generate sufficient income to meet their long-term needs.
• To mitigate their potential IHT liability and ensure assets are passed tax-efficiently to the children.
• To protect Emily’s inheritance if she gets divorced.

Question 1

The first question was in two parts.  Candidates had to identify the additional information that would be needed to advise Harry and Pauline on the suitability of their current savings, pensions, and investment, and in part (b) an outline was required of the key factors that should be taken into consideration when establishing if Harry and Pauline had sufficient funds to meet their long-term income requirements.  This first question was worth 26 marks in total.

In our analysis, one of our aims was to ensure their investments are suitable for their needs.  Within this section, we had identified key considerations, commented on the suitability of their existing portfolio, as well as the suitability specifically of the investment trusts and direct holdings of shares, and a recommendation and justification of the actions they could take to ensure the portfolio is suitable.  All this information would have helped candidates formulate their answer to Question 1.

Question 2

This question firstly asked for an explanation of why Harry should carry out a review of his existing SIPP before age 75, and part (b) of the same question asked for an explanation of why Harry’s purchasing a lifetime annuity may not be suitable in their current circumstances. This question was for 20 marks overall.

Our analysis covered various aspects of Harry’s SIPP, including the fact that at age 75, a BCE would be triggered, and the options he had to provide an income, which included the purchase of a short-term annuity.  This information would have been useful to candidates when answering this question as well as the analysis on Harry’s continuing with FAD rather than using a lifetime annuity for part (b).

Question 3

Candidates next had to explain to Harry why his portfolio of individual shares might not be suitable for him, and in part (b), identify the key reasons why a range of collective investment funds might be more suitable. This was for 19 marks overall.

Our analysis covered the suitability of both Harry’s investment trusts and his direct holdings of UK shares, and we had included a table detailing the specific risks of holding equities, which would have covered part (a) of this question.  We hadn’t specifically covered part (b), but candidates could have formulated some of their answers from their previous answer to (a).

Question 4

Next, there was a question on IHT.  Firstly in (a) candidates were asked to explain the criteria that would have to be met for gifts out of income to be effective for IHT purposes, and the benefits of this strategy for them, and in part (b), identify the steps that must be taken to wind up Harry and Pauline’s estate and explain how their assets will be treated for IHT purposes on second death. This question was for 23 marks overall.

Candidates using our analysis would have picked up throughout the IHT implications of their various assets in their estate, for example, the SIPP being IHT-free, and the whole of life policy being available to pay the IHT on death; this section also included reference to probate as well as the premiums being treated as out of normal expenditure.

Question 5

Next came a recommend-and-justify question regarding why Harry should consider reducing the current income withdrawals from his SIPP. This first part was for 11 marks.  In part (b), candidates had to recommend and justify the actions that Harry and Pauline could take to protect Emily’s inheritance as she is considering a divorce. This part of the question was for 8 marks.

Both questions we had covered; the first one we had included the exact question that appeared in the exam, and we had also included a whole section on ensuring Emily’s inheritance is protected.

Question 6 

The exam continued with a question on the key benefits for Harry and Pauline of investing some of their cash holdings into an onshore bond, and in part (b), state the key factors that they should consider when deciding whether to renew their whole of life policy. This question carried 18 marks overall.

Part (a) was an interesting question as there was no indication that the clients wanted to invest in an onshore bond. However, we are confident that candidates would have used their existing knowledge to answer this question well.  Part (b) we had covered with a section on the factors to consider when advising on the existing policy, which would easily have covered the seven marks available.

Question 7

We then had another recommend-and-justify question; this time on the actions that Harry and Pauline could take to manage and dispose of Harry’s individual shareholdings in a tax-efficient manner, and in part (b) identify the key factors that an adviser should consider before recommending the sale of Harry’s Investment Trust. Overall, this question was worth 21 marks.

We had both these questions covered in our analysis, with plenty of information regarding transferring shares to Pauline using the interspousal transfer rules and making use of their different tax rates and both annual exempt amounts, as well as a table highlighting the benefits and drawbacks of Harry’s being invested in investment trusts, which would have provided the key factors in part (b).

Question 8

The final question was the review question and candidates had to firstly (a) identify 6 events that would trigger an immediate review of Harry and Pauline’s financial arrangements and in part (b) explain to Harry and Pauline why they should review their Wills and pension nominations regularly. Overall, this question was worth 14 marks.

The first part of this question should have caused no problems as candidates can choose mainly client-specific reasons topped up with a couple of generic reasons such as changes in tax legislation.  Equally, some parts of our model answer could have been used for part (b).

Overall, this paper seemed slightly more challenging than previous papers with questions being asked that had not been signposted in the fact-find.  This highlights how important it is for candidates to be well prepared in the areas that can be predicted to ensure that as many marks as possible are achieved here to make up for the potential for lower marks on those questions that had not been signposted.

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!