Our Post-Exam Review of the October 2020 CII AF5 Exam

The CII has now released the exam paper for the October 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 October, you can access it on the CII website.

This time, the fact-find, released two weeks prior to the exam, concerned Dan and Tara, age 40 and 36, who had recently sold their London home and moved to Norfolk to set up a home-based new business.  They had twin daughters, aged 2.

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

Immediate objectives:

• To set up an appropriate remuneration strategy from their new company
• To arrange suitable protection for the children in the event of either death
• To consider the purchase of a commercial property unit

Longer-term objectives:

• To arrange a suitable investment strategy for the proceeds of their house sale
• To establish a suitable strategy to ensure that school fees can be met
• To ensure that they can generate an adequate and tax-efficient retirement income

These were basically the objectives we predicted and used when compiling the analysis.

Question 1

The first question was in two parts for a total of 20 marks. Firstly, candidates had to outline the key client-specific issues to consider when advising Dan and Tara on the investment of the house sale proceeds. The second part of the question asked candidates to identify the key information needed in respect of their existing pension plans when reviewing their suitability for their retirement planning.

We had covered client-specific factors with regard to their attitude to risk, and some of these factors would have been relevant and helpful in answering the first part of this question. We had covered the second part of this question in full within the objective analysis on retirement planning.

Question 2

Question 2 covered their first objective on remuneration strategy; candidates had to outline the key benefits of using a combination of salary and dividends for their income from their new company, and this was for 8 marks.  Secondly, for 12 marks, they had to explain in detail the benefits of making employer pension contributions for themselves.

Within the analysis, we had provided the main points regarding taking a salary versus taking dividends, and within this, were the key benefits.  We had also covered the second part of this question in full within the analysis on their retirement income objective.

Question 3

In Question 3, for 10 marks, candidates had to explain why it is important to write wills, and in part 2 of the question, they were asked to recommend and justify why setting up a bereaved minors trust in their wills can ensure the twins will be financially protected if both Dan and Tara die.  The second part of the question was for 9 marks.

The fact-find had signposted the fact they did not have wills.  Our analysis, therefore, covered the problems of this current situation; how assets would currently be distributed in the event of death as well as the process of how their estate would be settled.  This would have been sufficient for candidates to answer part 1 of this question well.  The second part of the question can be seen as something of a curveball, and this was not something we had covered in our analysis.

Question 4

Question 4 covered the school fees objective; firstly, candidates had to outline the key issues that they should consider if they decide to invest a single lump sum of £100,000 to meet this objective. This provided 9 marks.  Candidates also had to outline, for 7 marks, the main drawbacks of using a lump sum for this purpose rather than saving from regular income.

We had covered this objective by providing fact-finding analysis, the options for funding, and the use of various investments including advantages and drawbacks.  Much of this information could have been used to answer the first part of this question, and although we hadn’t specifically covered the second part of the question, we trust that this could have been answered using candidates own knowledge and experience.

Question 5

Question 5 moved into the protection objective, where the question started with a required explanation of the benefits of setting up protection policies via their new company instead of on a personal basis.  This was for 7 marks.  Candidates also had to recommend and justify a suitable protection policy to provide a regular income to ensure funds are available to meet any childcare costs in the event of either them dying whilst the children are still in school, and this part of the question provided 10 marks.

We had covered protection as our objective 2 and provided various model answers for different potential questions, including the company’s taking out the policies instead of them personally. We had also provided information in the generic section on the different protection policies including family income benefit.

Question 6

Question 6 was for 31 marks in total.  It tested the drawbacks of purchasing a commercial property as part of their future investment portfolio, for 10 marks, and why Tara should consider transferring her cash ISA to a stocks and shares ISA, for 11 marks.  Candidates also had to explain, for 10 marks, why it may be more beneficial to move the cash deposits into their existing National Savings and Investment Income Bonds in the short term.

Commercial property purchase had been signposted in the fact-find, and we had considered this from various angles, including the benefits and drawbacks of commercial property being held via a SIPP or SSAS.  Most of the drawbacks apply to buying a commercial property personally so could have been used to answer part 1.  Within our objective 3, which concerned reviewing the suitability of their portfolio, we had provided analysis on their current investments, which included holding too much in cash and the reasons why they should be more diversified. This information would have helped in answering part 2 of this question.  We had also included analysis on why the holding of NS&I Income Bonds would be a suitable place for the proceeds of their house sale, and this could have been used to answer the last part of this question.

Question 7

Gold was also mentioned in the fact-find, and this was tested in Question 7. Candidates had to explain how Dan and Tara could gain exposure to gold as an investment in their portfolio. This was for 4 marks and was covered in full within our analysis.  Candidates then had to outline 5 benefits and 5 drawbacks of holding this type of investment within their portfolio, and we had included a table of the key benefits and key risks of investing in commodities, which would have covered and answered the second part of this question.

Question 8

Finally Question 8, which as is usually the case, is the review question.  Candidates had to explain the importance of reviewing ATR on a regular basis for 8 marks and then give 7 factors to consider when reviewing their finances in relation to the new company.

We had provided several pieces of analysis on reviews, their attitude to risk, as well as regarding their new company, so although we hadn’t covered these aspects specifically in relation to the review question, the analysis would have been useful in formulating answers.

To summarise this paper, the objectives given on the day were, in the main, the ones we had expected, and many of the resulting questions were anticipated and covered in full in our analysis.

In the previous paper in July, some signposts in the fact-find didn’t translate into questions, and this time around, some questions could not have been easily predicted by the fact-find, for example, the bereaved minors trust.  Although curveball questions can sometimes appear in the exam, the marks allocated to them should not be enough to mean a fail if candidates could not answer that particular one in enough detail to score good marks.  However, once more, this is a reminder that AF5 does bring additional challenge and students need to prepare well and think wider than the information provided in the fact-find.

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!